Question : What are the advantages and disadvantages of debt consolidation?
I have two credit cards that I have used over 5 years ago and never paid back. The total of the two cards FIVE YEARS AGO was $1000. Of course, by now, it should be close to $3000 because of all the interests.What does debt consolidation do? More importantly, can it REALLY remove or reduce the interest that built up over the last 5 years?When doing a search for debt consolidation services, I get THOUSANDS of results. Which debt consolidation services are better?Detailed answers would be appreciated.Update: Am I correct to assume that if I leave the debt as it is, I can have it completely wiped off my credit card two years from now as if it never happened?
- asked by jimmyaven
All Answers:
Answer #1
Hi, Jimmy:First, I already answered a relatedquestion, so I've copied that answer below afterthe dashes.If your number one objective is tosimply improve your credit, you could just wait itout for another 2 years until the debt is 7 yearsold. You can then ask for it to be removed fromyour credit report. If this is your objective,then don't pay the debt. Records on your creditreport are good from 7 years of last transactionso any payments or charges you make resets that7-year clock.Personally, I've never used a debtconsolidation company because I've felt capable oftrying the same tactics myself. Granted, thesecompanies are professionals and may get special"deals" and privileges that I wouldn't get, butI've still been pretty pleased with my ownresults.Before using a debt consolidation company,I recommend trying your own hand at it. Contactyour creditors. Before you do, determine how muchyou can afford to pay in a monthly payment. Evenbetter, if you have some money saved up as a lumpsum, you can try to pay them off in a couple ofchunks. The more money you can give them at once,the better your negotiating power.If you're incollections, ask the creditors by how much they'llreduce the total amount owed if you pay now/in 30days/in 60 days/within a year.If you're not incollections yet, ask the creditors how muchthey'll reduce your total interest. Somecompanies (e.g. Discover used to do this) willeven suspend interest entirely while you're inre-payment. Of course, you can't use the creditcard during that time, but you're saving money andsalvaging your credit.Goodluck!-----------------------There are severalbenefits to credit card consolidation:-Convenience (only one or two payments)- Easier tomanage (less likely to forget a bill!)- Possibly alower combined interest rateGenerally, whencompanies help you by consolidating your creditcards, they contact the credit card companies onyour behalf and try to negotiate a lower interestrate (you can do this on your own, by the way).Then, the companies can take one of severalmethods for that single consolidated payment.Options include...- Financing your debt themselvesand then THEY pay your creditors- Helping you finda financier to consolidate your debt- Having youroll all of your debt under one of your existingaccounts and pay off the othersAs such, creditcard consolidation does not affect your creditrating. In fact, the results of consolidation areoften positive simply because it's easier tomanage and you may pay less interest.All thisbeing said, I've never used a consolidation agencybecause I never wanted to pay the fees. Instead, Icontacted my creditors myself and asked for thebest possible interest rate they could give me,and asked what kind of arrangements I could maketo manage debt. In general, they all worked withme.By the way, here's one thing to consider whenpaying off your debt: Bad credit falls off yourcredit report 7-10 years after your lasttransaction. So, if you have a liability that is 6years and 10 months old, carefully considerwhether you pay it off or not. If you touch thataccount at all, even if it's to pay it off,suddenly that 7-year period is renewed. So, thechoice you have to make is: Do you want somethingthat was bad and is now paid on your credit reportfor another 7 years, or do you just want it goneentirely?There are some ethical questions there,too (e.g. if the debt was yours and you were above18 at the time, you should pay the debt to beethical). These are questions that only you cananswer. But, when working with a consolidationcompany, make sure they only consolidate theaccounts you want them to touch.Good luck.
- answered by Idiot_Savante
Answer #2
Debt consolidation is taking all your debt andconsolidating them into one, supposingly smallerdebt, thus reducing the amout of over all interestyou are paying on several debts.Debt consolidationcompanies are companies that act on your behalftalk to the companies you are in debt with,perhaps negotiate the debt down if you have notpaid on it in awhile and perhaps it has gone tocollections. Some or most of these companies arenon-profit companies, however there is a charge ofa percentage of what they save for you that isnormally leveled against you.You can do the samething yourself by finding a company that will giveyou a loan to pay off all your credit card debtand other debt that you might have into one singledebt, thus reducing your debts to a single debtwith a lower monthly payment, and in most caseslower interest rate, but the interest rate willdepend on your credit scores off your creditreport. You don't have to have the top scores toaccomplish this. Lower scores simply mean thatyour interest on your debt consolidation loanwould be a little higher, though probably lessthan what you would be paying for all your creditcards and on the debt combined.From what I gatheryou have two credit cards that you are behind inpayment since you indicated you have 2 cards overa 5 year period that you have yet to pay back whatyou have used on them.They have probably been soldto another company by now. this is called a chargeoff by the company that originally had your creditcard debt. You, in some cases, can call thosecompanies that have purchased your unpaid debt,make a bargin to pay them in one lump sum, say youare able to pay them 1/3 of what you owe. In thisinstant you stated that the debt was at one time$1000. If it was sold for that amount you might beable to pay if off completley for around $350.00,just make sure that if you do you ensure that thecompany send a piece of paper to the creditbureaus that the debt is "PAID" simply "PAID" thiswill cause your credit score to go up a littlebetter than "PAID CHARGE OFF" which they willplace on your credit report if you don't ask themto place "PAID" on your credit report. I hope thishas helped you in some way.
- answered by Skip
Answer #3
Being in Australia, I can't comment on whatfacilities are available. Go to a bank, or otherfinancial institution and ask them what theyoffer.First, and most important, DESTROY ALL yourcredit cards. No use consolidating debt if youjust use it as an excuse to get into moredebt.Second, make payments that are about the sameas you make on the total of all your payments atthe moment. ie if you have 3 payments of $75.00,arrange your new loan so that your new monthlypayment is about $200.00.Now, to answer yourquestion. Debt consolidation is getting one loanto pay out all your other loans. This means thatyou have only one payment per month to pay andthat payment is a set amount. Depending on theterms of the loan the payment or the length of theloan may vary if interest rates go up or down.With debt consolidation, you arange a personalloan which may be secured or unsecured at aninterest rate which is far lower then your creditcards and often with reduced fees. Here, you maypay 15% to 20% interest on your cc but only 7% to10% on a personal loan. A saving of between 5% and13% on $3000.00 will be as little as $150.00 to asmuch as $390.00 in the first year.The thing isthat you have only one debt to pay, and destroyingyour credit cards stops ffurther debt.Yes, itshould help reduce the interest you pay on yourdebt. The only way you can eliminate it is to payit off.There is some great advice in the bible toeveryone, not only Christians. It comes from Rom13:8 and says " Owe no man any thing, but to loveone another..."I have debt, but I am heading tothe place where I can be compliant with this Godlyadvice.
- answered by jemhasb
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