10 Myths of Debt Consolidation
It is no mystery that ever since we became connected in the vast world wide web of things that we have been bombarded with companies that will help us, from our weight to our finances. But beware, there are pitfalls to the debt consolidation plans.
1. All your creditors will play nice. Myth number one, most agencies, and trust me the vary widely in skill and expertise, are just third party payment systems, where you pay them, one fixed payment, and they pay your creditors from that payment, for the most part, you are not getting any deal, or negotiation from these companies with your creditors at all, they just pay your bill, after taking a fee for themselves.
2. Agencies that are part of the National Foundation for Credit Counseling or Financial Counseling Association of America insure that your are getting the best quality and service. Myth number two, they are just guideline entities and have no real teeth. The “accreditation” just looks good on paper.
3. Plans vary widely and are flexible. Myth number three, they are not. All plans are basically the same and no agency has any special trick or arrangement with a creditor that another agency does not, don't fall into that trap that you can get some special treatment with one that you cannot get with another.
4. Counseling before Consolidation will give you many options. Myth number four, wrong, the only option they will give you is to get into their plan, period. Why, because they are running a business and they only make money if you sign up, they make no money if they push you in some other direction, such as bankruptcy, or if you are completely broke, into doing nothing at all, the latter two make them zero, so why would they recommend them. They want your money, so they will say what they need to get you into their program.
5. Consolidation is right for everyone. Myth number five. Wrong, don't let them tell you that it is the only way to go, there are many reasons why debt consolidation is wrong, if your debt is secured, they cannot help, or tax related, or child support related. Don't fall into that trap.
6. It is easy and simple to do. Myth number 6. If it were easy and simple to do, you would do it yourself. They will tell you that you don't have to worry about your creditors, just make the payment to them and they will handle it all, wrong, try telling your credit card company to call your credit counselor they are handling your affairs, they will tell you to go jump in a lake. The only thing that a credit consolidation company wants is your money, not your phone calls.
7. Once you sign up, you are done, nothing else to worry about. Myth number 7, wrong, again. You will still be getting statement from your creditors, and the balances they say may not match what the debt consolidation company may say, you have to be 100% plugged into the program and monitor it at every turn, you cannot go on auto pilot like they say. You will have a rude awakening if you do. And, if you think you cannot be sued, or garnished, think again, if you do not pay your creditor, or the company you hire does not, you will be sued!
8. You can keep your cards and still charge. Myth number 8, you will be asked to voluntarily close out your accounts, which, if you still need them to survive, can have a negative effect on your credit, closing out the accounts will not help your credit score one bit.
9. Debt Consolidation is good for your credit. Myth number 9, wrong yet again, all these accounts will be notated with a third party payee, which if you are a lender, sends up huge red flags, indicating that you are in some financial peril. These programs, can have the absolute opposite effect on your credit.
10. Consolidation programs are cheap compared to bankruptcy. Myth number ten, 100% wrong, wrong, wrong. The average chapter 13 bankruptcy fee is about $3,000, the average chapter 7 bankruptcy fee is about $1,000, the average credit consolidation is near $7,000 over the life of the program, with many of that taken out up front before any money ever goes to your creditors.
Don't be fooled into a debt management or consolidation program, if you truly want to pay off your debt you are way better in a chapter 13 bankruptcy, where your accounts freeze, your interest freezes or goes down to zero, you have the help and expertise of your skilled attorney, you have protection from your creditors under federal law, and if there is a dispute you have a Judge to hear them. Call Me!