Debt Consolidation Companies

When you’re experiencing debt or financial difficulty, inevitably the idea of hiring a debt consolidation company has crossed your mind. Because so many people come to me asking my opinion, I wanted to share a little bit more about them here.

Basically, debt consolidation companies will negotiate with your creditors to arrive at a payment plan or settlement. How most are structured is that you sit down with them, explain your financial picture— home payment, mortgage payment, car payment, etc.—and based upon your income, they come out with a feasibility plan. It should be something you can realistically pay over a period of time. In most cases, what they do is set up a monthly payment plan.

Debt consolidation amasses the cash you can pay; once they’ve accumulated 60-70%, they go out to your creditors to see if they’ll agree to a lower payment. For example, if you owe $2,000, they might settle for $1500.

It’s important to note that while this process is going on, credit card and collection companies can contact you and they can still take you to court in order to obtain that debt. So hiring a debt consolidation company is only practical IF there’s a realistic timeframe of paying back all your debt, such as 3-5 years. If it will take any longer, you should seriously consider alternative methods.

To recap, debt consolidation companies contact your credit card companies, set up a monthly payment schedule and in turn pay your credit cards.

Advantage: Unfortunately, some people are too attached and emotional to effectively negotiate with their credit card company. Hiring a debt consolidation company is a great way to have someone else step in and lend a hand.

Disadvantage: Most people have 5-7 credit cards. Debt collectors only take 3-4 credit cards. So, the debtor still has to deal with the other creditors on their own and will still be left unable to pay.

My take? Many times, hiring a debt consolidation company is like putting a Band-Aid over a gaping wound. Let me give you a reality check and a very quick way to know whether or not you should hire a debt consolidation company: if you can’t pay your debt back within 5 years, who are you kidding?

Do you want to talk out your situation? Then sit down with a knowledgeable, understanding professional. I am a Worcester bankruptcy lawyer and encourage you to call my office, the Law Office of Jack Morrison, today at 508.852.7800 or reach out via our contact form. There’s no obligation and the call is free. If bankruptcy is not the best option for you, I’ll let you know straightaway. Thank you.