Debt Consolidation: Will it help?
61No matter what the circumstances were that brought a person into this predicament of financial havoc a Debt Consolidation company might be the answer to some that are desperately behind in their bills. As these companies are all about giving a helping hand, to anyone who has gotten themselves into major financial chaos. It really doesn’t matter why or what it was that brought the person there. These debt consolidation services are offered by either non-profit organizations, churches or by trustees, and each of them works in a similar way as any other debt or bill consolidation program.
These organizations are always ready to assist people regardless of their color, race, age or credit rating, some of them are even free of charge. They function on principals that are based on resolving overdue financial responsibilities through honesty and honor. Their aim is not only to help reduce the financial burden but also to show the debtor ways to live within their means. This is to ensure that no-one falls back into the same debt trap again.
The benefits of getting help from a debt consolidation program are multifaceted. Not only will these companies negotiate reduced rates of interest with the creditors, they will in some cases even try to eliminate them altogether. They will work on excluding accrued late fees which in-turn could bring down the total Owings considerably.
The multiple backward bills will be replaced by a single monthly payment. At the same time, they will set-up a well-planned budget for the debtor to follow thus enabling him or her to pay off the bills in the shortest time possible and avoid bankruptcy altogether. Getting a plan set up by a debt consolidation company also has the extra added benefit of eliminating those pesky sometimes scary collection calls which alone should take a major load off anyone’s shoulders.
This is generally how the whole procedure works. The debtor discloses all of his or her overdue debts, regular ongoing bills and the accurate amount of moneys coming into the household. The dept councilors will negotiate and construct a do-able plan which is specifically geared to each individual’s needs. Each payment that the debtor then makes to the company gets divided up on a pro-rated scale and distributed to the creditors. (ie. the creditor who is owed the largest amount obviously gets the biggest cut)
After following this course or plan set up by a debt consolidation service the debtor will be able to become debt free and feel a totally great sense of accomplishment. Hopefully after having been given a second chance the debtor will have learned enough from this ordeal to live within his or her means and from then on lead a debt free life.
Warning! warning! warning! warning! warning! warning!
Please make sure you read over every contract you are given to the last word. If you do not understand some of it get the councilor to explain each point again or let someone read the contract with you.
I bet the feeling of being able to answer the phone gives you the urge to rush things. However make sure, one hundred percent sure you are dealing with a reputable company and not some scheisters who will take your money and run. That scenario will leave you in a worse predicament than before.
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Lots of good information here, but I must echo the warning about being scammed. I've seen a huge increase in people who have been fleeced by con men posing as debt settlement companies. Any time people are desperate, criminals step into the vacuum and offer false hope in a bid to take what little money they may have left. I've written a hub on fraudulent debt settlement companies, and what consumers should look out for.
Joel, thank you for your comment. I believe there must be different laws between the US and Canada on debt consolidation. I honestly do not believe that lending more money to bail someone out of a financial mess is the answer. (maybe in some cases it's the right thing to do, however I doubt it, but that is neither here nor there) The average person who has run into a lot of problems deserves a second chance and paying off the moneys owed in an 'ethical' way is also his/her right.
'Debt Consolidation' which I'm talking about is where every bill gets thrown into a hat usually without the added interests etc then the moneys the debtor can repay is divid up between all the creditors and then there is the "Debt Consolidation Loan" which you're talking about and from the sounds of it confirms my belief that lending more money to pay off debt is wrong.
Now I thank you again for your comment because I will need to add another capsule to my hub here with a warning for all to read.
kindest regards Zsuzsy
Thanks for this informative article. Although I have to say that there are other factors that need to be pointed out.
One thing to keep in mind is that even if these companies help reduce the amount owed (or eliminate them), that doesn't make the problem go away. Whatever amount owed that is waived gets reported by that creditor to the IRS, and the debtor ends up getting taxed on that amount.
About 2% of debt consolidation companies are ethical companies with good intentions, but the majority are simply lenders who take a bunch of high interest debt that would be paid off in about 5 years - and roll it into a lower interest rate home equity loan (that the lender gets a commission on) that will take 15 to 30 years to pay off. This usually ends up costing less money per month, but thousands (if not tens of thousands) of dollars more in the long run.
Oh my goodness Jerilee that is terrible how about kicking the guy who's down some more. Thanks for the warning I will need to add another capsule into the hub to point this danger out.
I blame all this crap on credit cards and such. In the olden days if you didn't have the money for something you didn't buy it. I heard an ad on TV last night a national furniture store is advertising that you can 'buy' anything in the store over 1500 dollars and not start paying back anything till Christmas 2012... whatever they're buying will be worn out and thrown out before its paid for for crying out loud...
It's really going to be a rough rough couple of years for a lot of people.
Glad you came for a visit
regards Zsuzsy
Here in the U.S. you have to watch out for debt consolidation companies that are scammers. My nephew was sending his hard earned money to one that was keeping the money and then disappeared. Lots of desperate people these days. Don't have any debt but that is not easy.
Paradise I was shocked when I read an article the other day of how many people have had to fold in the passed few months. And that is world wide not just US and Canada.
thanks for taking a look and for commenting
kindest regards Zsuzsy
This hub should be required reading for practically everyone in America right now! The way out of the woods...
Creativita, always glad when you come for a visit. It is really distressing to me to see how hard hit so many people are. And it's right across the board not just low income people...
I fear it will be a hard winter and a tough Christmas for many...
kindest regards Zsuzsy
Doreen, you have a good point about the credit card companies lowering their interest rates. Unfortunately most often even that is not an option anymore as they have delinquent accounts too far gone to rescue.
Thanks for taking a look and for commenting.
regards Zsuzsy
Laura, thanks for taking a look and for commenting. It is really disturbing to see how many good people have come into these financial predicaments.
regards Zsuzsy
Dohn, thanks for taking a look. I was made aware of these services by a friend who's son lost his job last year and got himself into a total mess mess mess. As my friend is also a single parent she could not bail him out.
You are absolutely right about the backlashes if the monthly payment is not honored.
regards Zsuzsy
Very cogently written with salient points of great value to people mired in debt, Zsuzsy Bee. Especially valuable during this time of great economic distress here in the West and around the world. Thank you for this enlightened piece. Helen/Creativita
This is really great advice to help some people get back on track. Many people also don't realize that they can simply ask their credit card companies for a lower interest rate on their card and it's amazing how willing they are to lower it provided you meet your payment requirements.
Thanks for sharing. Let's hope hope the right people read your article (probably about half the income earners in the world)!
You made some really valid points. People today could use as much help as they can get, but should of course be wary of the backlashes of not paying their back their newly consolidated monthly payment! Thanks.
Zsuzsy Bee Hub Author 2 years ago
Miss Belgravia, thanks for taking a look and for commenting. I have a hard time understanding how rotten people can get. If they take advantage of someone who is in financial trouble, wow how low can you get...
kindest regards Zsuzsy