so i am in huge bind financially?
Luis C asked:
My parents bought a home and asked me to move in with them, which i did. It’s now been 2 years and financially i am doing really bad meaning that i can’t pay off my credit cards, I’m always past due to the fact that the mortgage is high, my question is do those commercials about credit card debt really help you? like those, “I went to debt relief and now i owe no more money, I’m debt free..” does that really work or is it a scam?
Allen
My parents bought a home and asked me to move in with them, which i did. It’s now been 2 years and financially i am doing really bad meaning that i can’t pay off my credit cards, I’m always past due to the fact that the mortgage is high, my question is do those commercials about credit card debt really help you? like those, “I went to debt relief and now i owe no more money, I’m debt free..” does that really work or is it a scam?
Allen
Tags: Bind, Credit Cards, Debt Free
July 20th, 2009 at 7:37 pm
Claude
Myth: Debt consolidation saves interest, and you have one smaller payment.
Truth: Debt consolidation is dangerous because you treat only the symptom.
Debt consolidation is nothing more than a “con” because you think you’ve done something about the debt problem. The debt is still there, as are the habits that caused it - you just moved it! You can’t borrow your way out of debt. You can’t get out of a hole by digging out the bottom. True debt help is not quick or easy.
Larry Burkett, noted financial author, says debt is not the problem; it is the symptom. I feel debt is the symptom of overspending and undersaving. Our certified counselors will not recommend debt consolidation for a client. Why? Because debt consolidation doesn’t work.
Debt Consolidation Statistics
A friend of mine works for a debt consolidation firm whose internal statistics estimate that 78% of the time, after someone consolidates his credit card debt, the debt grows back. Why? He still doesn’t have a game plan to either pay cash or not buy at all. He also hasn’t saved for “unexpected events” which will also become debt.
Debt consolidation seems appealing because there is a lower interest rate on some of the debt and a lower payment. However, in almost every case we review, we find that the lower payment exists not because the rate is actually lower but because the term is extended. If you stay in debt longer, you get a lower payment, BUT if you stay in debt longer, you pay the lender more, which is why they are in the debt consolidation business.
Debt Consolidation Example
For example, let’s say you have $30,000 in unsecured debt, including a 2-year loan for $10,000 at 12%, and a 4-year loan for $20,000 at 10%. Your monthly payment on the $10,000 loan is $517 and $583 on the $20,000 loan, for a total payment of $1,100 per month. The debt consolidation company tells you they have been able to lower your payment to $640 per month and your interest rate to 9% by negotiating with your creditors and rolling the loans together into one. Sounds great, doesn’t it? Who wouldn’t want to pay $460 less per month in payments?
But they don’t tell you that it will now take you 6 years to pay off the loan. This may not sound that bad to you at first unless you realize how much more you will actually pay in additional payments. You will now pay $46,080 to pay off the new loan vs. $40,392 for the original loans, even with the lower interest rate of 9%. This means you paid $5,688 more for the “lower payment”. Not such a good deal after all. This example shows you why they are in the business - because they make money off of you.
July 21st, 2009 at 2:12 pm
Charles
The debt consolidation companies do work. Basically what they do is take all your credit cards and ask those companies to lower the interest rate..most of the time they end up somewhere between 7-10%. You then pay a payment to the consolidation company, plus a service fee, and they pay the credit card companies based on the agreement you have made through them.
SO all in all, yes they do help because you are paying pennies on the dollar to your higher interest rate you have now. It all depends on what your interest rates are now, versus what they would be on the program.
I have done it and it was worth it. Even when it showed on my credit, it was worth getting them paid off faster.
July 24th, 2009 at 9:46 am
Nellie
They’re not all a scam, but for long term help, you need to learn to live within your means & cut up your credit cards.
July 25th, 2009 at 9:45 pm
Kevin
The only real help the consolidation companies can do is negotiate on your behalf, but that sort of reduction will hit your credit report. If you call the credit card company yourself and ask for a reduction in interest, it won’t affect your credit report whether they say yes or no.
But, you need to knock down the principle, not just the interest. Debt consolidation companies don’t really help you with that.
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Step 1: Put yourself on a budget. A couple of days before your next paycheck, write down everything you plan on spending money on.
If you don’t have enough money for all the bills, prioritize.
The important bills are food, shelter, utilities.
Nobody else gets a dime until those bills are current.
Step 2: You and your parents (since you’re all living together) need to decide if you will all get serious about knocking out these debts.
Step 3: Start selling stuff to raise extra cash. As Dave Ramsey sometimes says: “Sell so much stuff to where the kids think they’re next.”
July 28th, 2009 at 8:50 pm
Franklin
Using those companies is almost like filing bankruptcy as far as your credit is concerned. You can call your creditors yourself and see what can be done. Don’t call any collectors-they are rude, merciless, and annoying. Most creditors will work with you. The alternative is they don’t get anything. Listen to the others and go to the Dave Ramsey site. NO, this is not a commercial for Dave Ramsey. He’s rich and doesn’t need your money. Read: The Total Money Makeover. Check it out from your local library. You can read it in a couple of days easy. The hard part is understanding that the debt is not your problem. The problem is that guy in the mirror.