Debt Consolidation Companies

Many individuals are considering hiring a debt consolidation company in an effort to responsibly handle their financial needs. These companies are currently advertising heavily on the television, on radio and on the Internet. Currently, there are many lawsuits pending against these debt consolidation companies, including several national class actions. Before considering utilizing the services of any debt consolidation company, you must investigate these companies thoroughly to determine whether they can provide any legitimate debt relief.

Many debt consolidation companies do little or nothing to help an individual eliminate their debts. First, many debt consolidation companies charge retainers costing thousands of dollars. All of these fees must be paid up front prior to the company accumulating any cash in an escrow account for debt settlement. The debt consolidation company will usually break this retainer payment into monthly payments, making the individual think that he or she is paying into a settlement plan. However, the first six to 12 months of payments are used solely for the debt consolidation company’s fees and costs. Only after all of those fees and costs are paid do the debt consolidation companies begin accumulating cash that they claim would then be used to settle the accounts with the credit card companies. In reality, the credit card companies do not wait for their money, and often sue the individuals while they are in a debt consolidation plan.

There are a few legitimate credit counseling services that will assist individuals with credit card debts. The legitimate services operate as nonprofit credit counseling agencies. Before engaging any debt management service, determine whether the credit counseling agency is a for-profit or a nonprofit agency. We do not recommend that anyone retain the services of a for-profit debt consolidation company.

An individual also needs to understand that the nonprofit consumer credit counseling agencies have limitations. First, while they can adjust credit card debts to some extent, they cannot address medical bills, personal loans, lawsuits, mortgages or vehicle loans. Additionally, neither credit counseling nor debt consolidation can stop a foreclosure or prevent repossession of an automobile. During the three to five years an individual is under a credit counseling plan, they are unable to obtain any new credit, and all of the existing credit accounts are frozen leaving the individual no means for obtaining credit. Additionally, even inquiring into the use of a debt consolidation company or consumer credit counseling credit service can negatively impact an individual’s credit score. For these reasons, the minimal benefits that can be obtained from an individual by using a credit counseling agency rather than filing bankruptcy often do not exceed the costs of entering into that plan.

Unlike the debt consolidation companies, attorney’s fees and costs for filing bankruptcy are disclosed up front and must be approved by the Bankruptcy Court. Additionally, the outcome of a bankruptcy case is more certain and is determined by the Bankruptcy Court, not determined by whether or not the particular creditors will agree to the proposed action. Often, bankruptcy will cost less than the debt consolidation company fees, and the outcome is within the control of the client, not the creditors. In some instances, consumer credit counseling is the best route, and in those cases we have no hesitation in referring potential clients out to legitimate counseling agencies. However, unless the individual receives information regarding both filing bankruptcy and entering into a debt consolidation plan, he or she cannot make an informed decision. Contact us for a free consultation for us to discuss the costs and benefits of both filing bankruptcy and utilizing the services of a legitimate credit counseling service.