Trying to help educate a relative about debt consolidation for high credit card debt. I assume it really affects your credit score, etc. How does he go about finding a reputable company and what are the ramifications?
A NONprofit debt consolidator can help. You need to tear off all credit cards and pay off cc debts over time.
Well, he or she can listen to Dave Ramsey and maybe see the light of paying off debt. That has worked for many people. Here is what he has to say about debt consolidators: http://www.daveramsey.com/article/the-truth-about-debt-consolidation/
Or they can figure out how to refinance it at lower interest rates, there are many ways, but will he/she just feel like they have more money available and keep running up the debt? I know you have to be pretty careful with the debt consolidators, as some of them are basically a scam. As low as interest rates are now, unless your relative has terrible credit, there still are ways to get cheap money.
I’m an “investor” in lending club, and most of what I/what there is to invest in is debt consolidation. Interest rates depend on a number of factors, and will typically range anywhere from 7% to 25%. You can have them check it out. Loan sizes are typically 10-35K.
With todays low interest rates, those rates sound almost predatory, unless someone’s credit is completely shot.
Years ago, H was laid off when his industry was basically shut down, and we were subsisisting on what I earned as a nanny & what he could earn mowing grass.
We had to use a charge card to pay medical bills & buy groceries, as we quickly went through savings.
As prospective employers refused to hire him, because they felt he would leave when his industry started up again, it took almost two years, before he was able to switch industries.
Fortunately, I found a non- profit consumer counseling agency that negotiated a reduction in our total amount due with creditors, and helped us easily pay off our debt, once we were back on our feet.
http://www.clearpointcreditcounselingsolutions.org
@emeraldkity4, I wonder, though, if credit card companies will negotiate a reduction in amount due purely because people feel like they have too much debt. I wonder if the payments have to be delinquent, and the companies need to be concerned about getting their money at all. I would love a reduction in the principal on my credit cards, but they would pretty much laugh me off the phone if I tried to negotiate it.
But you are employed, with a good job.
If someone is just able to make minimum payments, the amount due keeps increasing, even if they have not incurred any new debt.
At least one of our accts would not reduce amount due, but they did lower interest rate.
The store accts, did reduce amount due & reduced interest.
It also made it much easier knowing we just had one monthly payment to make, rather than keeping track of separate due dates.
I’m just wondering if they will negotiate, purely because someone says they can’t make the payments. Not sure they could verify employment in any way. Or perhaps they will negotiate with the consumer agency, who has verified that. I don’t see them being willing to negotiate with people purely because they are swimming in debt, but because they realize that if they don’t take something, they might get nothing at all.
Well, if your credit isn’t completely shot then your rates should be closer to the 7-10% kind of area. The people with really bad credit are the ones who get the 20-26% (I think the highest rate they have is 26.06%).
I agree that lenders most likely will not negotiate with individuals.
Probably because your average Joe, will not have access to anyone with the authority to reduce interest &/or total debt. It is difficult enough to talk to an actual * person* nowadays, let alone anyone with the power to help the consumer!
Oprah found that people who use consumer counseling have debt of at least $20,000.
http://www.oprah.com/money/6-Ways-a-Nonprofit-Counselor-Can-Help-You
Ours was less than half that, although only about 1/3rd was original debt. ( albeit it was a long time ago)
Some lenders won’t lower debt, I don’t think the hospital would, but it still was included in our monthly payment to the consumer agency, and they took care of the payment to the hospital.
The store credit card accts were the most accommodating. Possibly because they wanted to keep me as a customer when I got back on my feet? Nordstroms wouldn’t even let me close the account! ( they did allow me to make it inactive though)
I am guessing that by working with consumers, lenders are able to recieve more on the debt than if the individual declared bankruptcy. It’s good that there is an intermediate solution.
These agencies are govt approved, not everyone that is a non profit is actually effective at helping people pay off debt.
http://www.justice.gov/ust/eo/bapcpa/ccde/cc_approved.htm
Yes, this debt was incurred after a layoff and start up business at the worst possible time when the bottom fell out of the economy. The debt is not the result of any lavish purchases, vacations, second homes, gadgets, etc. The problem is that companies increase the rate based just on debt ratio, even if you don’t have a single blemish on your record. His business is doing pretty well but the monthly payments are taking almost everything. It’s putting a strain on the family of course because he is a very hard worker but just can’t get ahead of the debt. That is one of the reason he came to me about it. It’s hard to talk about it to people because they assume people in debt are spendthrifts.
I think it’s really brave to admit that. Ek, thanks for sharing what you did. I think it’s important to admit that you needed help.
Depending on the size of the debt, bankruptcy may be a better option. Any forgiven debt through consolidation and credit counseling is considered taxable income, which can then cause problems with the IRS. Credit rating would be shot and they would still have a lot of debt. More pride, perhaps, but still a heavy burden.
emeraldkity, thank you for sharing your personal story. I will pass along to him what you discovered in the process.