Have you ever gotten into an argument with someone who asked your advice and then got upset when you offered it? I have a friend who is drowning in debt. It is not an unheard-of problem, as many other people deal with it as well. The issue at hand is that my friend, easily impressed by those ever-present debt consolidation management commercials, was considering consulting one.
Debt consolidation management companies are not new. I checked them out myself out long ago and knew to stay away from them. However, many people are enticed by them because Americans are deeper in debt now more than ever before. The average American owes about $8,300 in personal credit card debt. As a collective nation, the United States owes over $13 trillion in various kinds of debts.
Why You Don’t Need Debt Consolidation Management
Still, a debt consolidation management company is not the solution. It should really never be the solution. For one thing, you can consolidate debt on your own, and on your own terms. Also, employing a debt consolidation management company will cost more money in the long run, create more debt, increase your tax burden, and perhaps wreck your credit score.
What Is Debt Consolidation?
Some people have ordinary debt while other people are drowning in their debts. If you have over $10,000 in debts and barely make enough money to pay your debts, then you’re in a debt quagmire. No matter what you do, you can’t get out of debt. It is not just bad luck either. People with massive debt problems usually have irresponsible spending habits and never save money.
Debt consolidation can be an option out of this problem. But it is often just replacing many debts with one large debt. For example, you may have a debt load of six credit cards, rent, a student loan, mortgage, and so on. Instead of having ten points of debt, you can take out a debt consolidation loan to pay off these debts.
You can go to a bank, credit union, or other financial institution to arrange your own debt consolidation loan. In this case, you are assuming a large loan to pay off your various debts. As long as you pay off your new larger debt, you shouldn’t have problems.
Debt Consolidation Management
A debt consolidation management company is also known as a debt consolidation relief company. Instead of assuming responsibility for debt consolidation yourself, a debt consolidation management company assumes responsibility for your debts for you. For a flat-fee or percentage commensurate to your debt load, they will negotiate with your creditors about your outstanding debts.
Keep in mind; they will not help you pay your creditors. In fact, a debt consolidation management company will ask you to stop paying your debts. Your debt managers will set up a debt account that you pay into every month. Meanwhile, they will try to convince your creditors to lessen or forgive your debts, which they legally don’t have to do. They might not even speak to your debt consolidation managers.
Even if your debt consolidation managers are successful, you will end up paying them in addition to your creditors. When you stop paying your debts, it will be recorded on your credit history, which can take years to remove afterward. Your credit score will receive a penalty. You may also have to pay more in taxes for forgiven or settled debts.
Fix Debt On Your Own Terms
My friend only realized that debt consolidation management companies require you to stop paying your debt after sign up. My advice to you is to pay off your debts on your own terms. Reevaluate your spending and savings habits. Otherwise, you may end up in more debt, and with more problems, than when you began.
- Creating a Plan to Pay Off Your Debt
- Should We Really Worry about Debt or Is It Just a Bunch of Numbers?
- How Your Debt Affects Your Credit Score
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