Debt Consolidation

[Meatros]

Alright, I have a huge assortment of bills from credit cards and I had two questions about debt consolidation:

Does it effect your credit score? How badly?

[Gfactor]

It depends on what you mean by debt consolidation:

1. You could mean borrowing money to pay off the debts at full value. This will have a minimal effect on your credit score. The score might drop a little, but the drop would be very temporary.

2. You could mean borrowing money to pay off the debts at a negotiated value. This gets tricky. You can sometimes get creditors to report these payoffs as “paid in full” or the like. Which is not derogatory. The effect of this is similar to item 1 above.

That is what I do for a living, BTW.

If the creditors will not agree to report the payoff as paid in full, they will report it as “not paid as agreed” or something like this, which affects your score almost as badly as a bankruptcy.

3. You could mean going through a credit counseling or debt management agency, which can have any of the results described above.

Here is a link for more information.

link

Good luck.

[toadspittle]

What kind of consolidation?

If you’re talking about getting a new, low-interest loan to roll the other debts into, then it will probably hurt your credit score, at least by 20 points. Whenever someone requests/accepts new credit, it makes them look riskier.

On the other hand, if doing so means that you won’t default on your cards, miss payments, be in debt longer, etc. … that will help your score in the long run.
But, if you’re talking about a debt management program, where a nonprofit counseling agency helps you negotiate lower interest rates and you make one monthly payment through the agency, that shouldn’t hurt your score at all (since you’ll be making payments on time and reducing your debt).

At the end, though, you won’t have those credit card accounts (since you must close them to join such a program). So that may not be to your liking.

Some will come in and say that these programs are a waste of time/money, since you must pay them a small monthly fee and might be able to negotiate with the creditors on your own … but if you were that together, you wouldn’t be in your current fix, in the first place.

[Crafter_Man]

Not sure about the credit score impact.

But on a related note… were you planning on using the services from one of those “Debt Consolidation” outfits you say advertised on TV? If so, be careful. Most (if not all) are scams.

From here:

If you watch TV, especially late at night, you’ll see all kinds of commercials for phony credit repair companies and credit counseling outfits. They ask if you’re getting harassing calls from creditors and claim to take care of your problems with “one phone call.” But these companies work directly against your interests and charge you hundreds of thousand of dollars to do a job you could do yourself. So, instead of getting you out of debt, they get you deeper into debt. The only legitimate service is Consumer Credit Counseling Services (http://www.cccsintl.org/). The representatives will work with you for free and they are the real deal.

[Gfactor]

*Originally posted by Crafter_Man *
**Not sure about the credit score impact.

But on a related note… were you planning on using the services from one of those “Debt Consolidation” outfits you say advertised on TV? If so, be careful. Most (if not all) are scams.

From here: **

It gets pretty complicated. There are villians in both the for profit and the non-profit camps.

This is a good discussion of the variables.

The about section is full of useful info on debt management and credit counseling.

And here is an article about a non-profit cccs-affiliated debt management company that has come to represent the worst in debt management fraud.

Enjoy.

[smaft]

I had a customer once was working through a debt consolidation and was extremely annoyed that she was being referred to the bank’s bankruptcy department. She kept insisting she hadn’t filed for bankruptcy, but couldn’t understand that her “debt consolidation plan” was actually a Ch. 13 bankruptcy. Apparently no one had explained what they were doing to her, and she wouldn’t hear it from me.

[Gfactor]

*Originally posted by smaft *
**I had a customer once was working through a debt consolidation and was extremely annoyed that she was being referred to the bank’s bankruptcy department. She kept insisting she hadn’t filed for bankruptcy, but couldn’t understand that her “debt consolidation plan” was actually a Ch. 13 bankruptcy. Apparently no one had explained what they were doing to her, and she wouldn’t hear it from me. **

Yikes. That’s kinda scary. I wonder how much she was charged for this service.

[Bear_Nenno]

If using one of the credit counseling things, remember that even the NON-Profit ones charge you money. Apparantly if they only charge a certain percent or something, they can still claim to be nonprofit. Whatever…

Anyway, though they will not affect your Credit Score, they will affect your ability to get more credit while youre enrolled in their services. I still have like a 600 something credit score, but NOBODY will give me a credit card, or a car loan or freaking anything right now. Somehow, the counseling service shows up on the credit report. So they know. And no one will deal with you.

It’s so bad that I could not even have my name on my car loan. The credit union had no problem putting the loan soley in my brother’s name, but they would not let him cosign on a loan for me. Or let my name be on his loan. How ridiculous is that.
So basically what they’re saying is that they dont trust the bill to be paid if my name and his name are on the loan. But if it’s just him, then it’s ok?!

So I am paying 460 dollars a month for a car that is in my name but on a loan that is not. So I dont get any credit boost by paying on time for my 25000 dollar car. But my brother does. That sucks.

I would not have requested the service if I had known it would affect me like that. The only reason I did it was I was leaving for the military, and even after basic, Id be doing a lot of training that puts me in the field for months. So paying bills would be a pain in the ass. And I didn’t have a bank with online bill pay or anything cool like that. Actually, I didnt even know about that at the time… But I didnt want to make someone else worry about paying my bills and writing my checks n stuff while I was away. And I didnt want to worry that things were being paid on time… so it seemed like a good idea at the time.