Debt Consolidation (Full Version)

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tony.nz -> Debt Consolidation (6/30/2008 6:20:19 PM)

A friend of mine has a daughter in the U.S., who is struggling financially and working 7 days a week, she is paying off a number of credit card bills.

Apparently, it has been suggested that she goes through a company that specialises in debt consolidation, meaning that she replaces a number of accounts with one monthly payment. This will result in reducing her monthlty payments by over $100 a month.

My friend has asked my advice, on behalf of his daughter, because I do some of his accounting/bookkeeping work. I said that the principle is good, but that I know nothing specifically in regard to these US finance companies, or the US finance market.

He has also suggested to his daughter that she waits a month or so, because she has a compensation claim for a damaged knee going through, which may amount to something or nothing, which may also help pay off some of her debts. This also seems to be sound advice.

I am reluctant to name the specific finance company, in case of potential legal problems from feedback, however, if anyone sees any potential that the company involved may be dodgy, they can PM me.

Thanks for any help.

Tony.
(New Zealand)



U376977 -> RE: Debt Consolidation (6/30/2008 6:34:53 PM)

Tony, This kind of thing is done all the time. However, she can set up the same thing herself. The companies cannot do anything that the consumer cannot do. Have her contact all the creditors. Tell them she is in trouble and ask for a repayment plan. Her credit with the company will be shot--but it will be if she proceeds with the DMP as well. This is like an out of court Bankruptcy and as far as mortgages go many investors view similar to a chapter 13. It can ruin credit or be reported as pd as agreed. All depends on how the creditor reports to the credit agencies.
There are public free non profit agencies that provide couseling--but rememeber many are supported by the credit card companies and have every incentive to "collect." However, they are a good source of information about credit and how it may be reported to your credit report and they can provide calculators that show a timeline on how long a debt at a certain rate will take to be pd off.
I did a DMP and pd off the last card last month. Now I have to rebuild credit. It should take us two more years to get the score back up.



tony.nz -> RE: Debt Consolidation (6/30/2008 7:00:08 PM)

Thank you for your reply. It was not my impression that this was a debt management program, however this is where my ignorance of the US finance system may come into play. My understanding is that she would simply be raising finance from another source, in order to pay off her existing credit card bills. This should not therefore effect her credit rating? The credit card companies have been paid, and as long as she keeps to the new agreement, she is not in breach. That, at least would be my understanding.

We have a similar arrangement with bankruptcy laws in NZ, people can arrange similar formal repayment agreements without actually going through court bankruptcy, however debt consolidation is something entirely different. It would normally be done through banks, however they would normally require a security. The difference is, that I am not aware of any finance companies (in NZ) that specialise in debt consolidations, so perhaps there is a terminology difference.



Ps103 -> RE: Debt Consolidation (6/30/2008 8:23:41 PM)

Tony--

I have no personal experience with these companies, but I am aware that some of them are pretty unscrupulous. The will get the person to sign up with their service, the person will then make one payment to the consolodation company, but the consolidation company makes *no* payments to the person's creditors until they are in default, then the company offer the creditor a settlement out of the amount they have collected from the person. I do not know of a way to tell if the company is legitmate, and there are *many* scams out there, preying on desperate people.

This does ruin the person's credit, and is something people can do all by themselves.
Plus, the overage for the amount that wa settled for will count as income for the debtor, which can cause problems come tax time.

Since she is currently on time with her payments, I would think this would be the last route to go.


A person is always free to contact their own creditors and negotiate rates, but since the BK laws were changed a couple of years ago, I really believe creditor are *less* inclined to work with individuals--in addition to the fact that credit card companies have very recently begun to increase the intert rate *and* decrease the credit limits for existing customer who have had no problems in the past. The decrease in credit limit can cause damage to the peron' credit score, as well.

I would think her best bet would be to contact a company that is known to be legitimate, like CCCS ATLANTA and discuss the matter with them. They can steer her toward someone closer, if she is not near the Atlanta-Metro area.



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