What are the cons of using a debt consolidation/credit counseling service?
mommytomonkey asked:
Do these services negatively effect your credit? If so, for how long?
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Do these services negatively effect your credit? If so, for how long?
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@ July 2, 2008
Yes, they negatively effect your credit. All you’re doing is paying them to poorly manage your debt. What they do is put you into default, on purpose, and then negotiate with your creditors. It ruins your rating even further and makes them rich doing it.
You need to do what is called a “debt snowball”. It’s explained on this site. It’s ultra simple.
First, scroll down and click “Listen to Dave”. JUST LISTEN.
This one audio clip of his CHANGED MY LIFE when I heard it.
Listen to this man for free, on the radio or online. This is like getting financial wisdom from Bill Gates except this guy has a national radio show. He takes a call like yours atleast once a week.
Many agencies (mortgage companies) view debt consolidation no differently than a CHP 13 Bankruptcy.
I have heard some horror stories from clients who try using debt consolidation companies and the companies who they are working with make a mistake or miss a payment on behalf of the borrower. Ultimately your credit is *your* responsibility.
Paying off smaller debts to take on one larger debt can also negatively affect you. If you open up a new account that can drop your months reporting average. Small balances affect your credit less negatively than one large balance.
Negative items on your credit report typically only affect you for 24 months. Every 6 months your score is affected 25% less until 24 months (100%) is reached.
Opt for a debt consolidation loan: The easiest method of getting a debt consolidation loan is to utilize the equity of your home. Equity of your home is calculated and determined by the difference in the amount you have paid and the amount you owe. If the amount you have paid is more than the amount due, you can use it as collateral. This allows you to borrow money on lower interest rates. Besides, you also get tax benefit on this type of loan. Consult your tax advisor before opting for this loan.
Debt consolidation simply means you are putting all of your debts into one big ball and then borrowing more money to pay off that big ball of debt.
Credit counseling shows you are making an honest attempt at repairing your credit. Use only counseling agencies that are recognized by the FTC, these are fair and honest. Many of the others, make promises to help you when in fact, they just stop the phone calls and their efforts can hurt your score
Here is a link to find a credit counseling agencie
Govt approved credit counseling agencies.
Building a better credit report.