Why Debt Consolidation Doesn’t Work

I worked for several different not for profit debt consolidation agencies and it does work, however it is not instant.
People have a tendency to wait until they are so far in the hole that they can not climb out on their own before seeking some sort of outside help. Some out of embarrassment some because they just think they can do it and unfortunately once the debit to income ration gets to high they can not do it alone.]
When you need to use a debt management or consolidation company you need to remember a few things about how it works. These all get explained in great detail with you by your representative at the time you call. I am only going to give you a basic idea.
1) you already have debt at least $5000 worth.
This can include Mortgage not rent, rent is not a loan to be paid off but is a monthly bill remember that.
You have medical bills effecting your credit and if you are trying to pay them they are a bill and can be added in for consolidation. You have credit cards with monthly payments and of course there is finance charges on them.
Look at one of your statements at the finance charge and look at your monthly payment. The finance charge is the amount of interest paid out of your monthly payment each month. If your have a good amount of debt on that card like 2500 or more or if you have a high rate larger that 5 or 6% than you have noticed the debt owed is not going down much.
2) Are you late paying your debts mortgage credit cards, store cards, gas cards, hospital bills, car payments, old cell phone bills and other negative things on your credit that need to be paid and are debts even ones in collection? If yes than you noticed the debit on some are actually getting higher even if you currently are no longer spending on your cards. They will raise your interest rate when you are late.
This adds to your debt so do of course late fees which will continue to accumulate.
3) so now you have higher rates creditors calling or mailing you letters adding fees and sending to collections. Your monthly bills because of this and becuase you still make the same amount of income you did when you first got the debts before the late fees and higher interest rates you now are seeing the effects on your credit rating as well. So are your creditors and any new ones you may want.
(You need to consolidate.)
The process……
1) you call with statements and bills in hand. You already know what your monthly income is.
2) they add up all your monthly bills bills and see how bad your debt to income ratio is= how much money you owe monthly versus how much you actualy have as income.
3) they ask you what the interest rate is on each creditor since each persons situation is different. They tell you what that creditor as in Chase orfirst premier etc, has agreed to go down to when it comes to interest.. A first premier with a 20% interest rate may go down to 5% as an example.
that lower rate as well as the fact that they will stop charging you late fees will lower your monthly payment. This will be done to all creditors you add in. Each creditor will have a different rate.
4) these credit cards Will be closed, so they can be paid off. Some creditors will report on your credit that that card is in credit management debt consolidation what ever you call it. Not all will. This still looks better than late fees that get reported and card company closure for non payment or even bankruptcy.
5) you get told your new monthly payment. 1 payment a month maybe before you entered you were paying out 2000 a month in debts with interest rates on all above 10 or 15% maybe it would have taken you 15 years to pay them off if you didn’t go bankrupt first or get repoed or lose your home. Maybe you at the rates you had it would have had you paying 30000 in interest. and now you will be paid off in 3 years with no where near as much needless interest money being paid out and a lower payment you set the date for that you can afford to pay.
6)The debt management company will call your creditors for you they will notify them that you have enrolled that debt owed to them in the program. They will notify the creditor what the new payment date is and that the payment will be coming from them in your name.
Why from them? Because your new 1 monthly payment will be sent by check or money order to your debt management company where the new expected amount your creditors will take will be sent to them from your debt management company.
Keep in mind this is not an instant process. You may still get a few late fees as your creditors change the date of payment and the amount. This can take a billing cycle or 2. Ignore the statements you are working through debt management now. It will straighten out.
7) if new debts come up new hospital bill etc you can call your debt management company to see if they can add it in. Sometimes they can.
8) Also remember that if you are married both of you share the debt and the credit so consolidate both. You may not be able to get a new card from these creditors while in debt management but you probably do not need or want to.
Finally debt management id helpful it is successful but it is not a loan it is you paying of the debts you own and that relieves your stress and helps you get out of debt in ways you can not on your own. Debt management or credit counseling companies have agreements with the creditor you can not get for lower ates and stopping fees. That’s why it works. It just takes time.