Debt Consolidation: Not the Right Answer for Us

This post has beeen included as part of the 83rd Carnival of Money Stories - Election Day Edition!" hosted by Simply Forties. Check out some of the experiences of others in this rock 'n roll money world.

A few days ago, I posted about the positive outcome that I think came from my conversation with the folks at Money Management International--the mortgage division.

I did not find the debt consolidation group to offer such a good deal. The same night I talked to the mortgage counselor, I went over the same financial details with the credit card folks. Now I've got a number of credit cards (too many). Some of them were just for low-rate balance transfers. Two of them I've used for spending. Two were for my business. Two of them were a big concern--high rates, late payments. The others, I was juggling more or less successfully. (Probably the wrong word.)

After going through the drill with the credit counselor, he suggested that they could lower my 30% rate to 15%, but the others would all stay the same or even increase. They would create a 5-year payment plan to pay off all the debts. I would pay MMI, and they would pay the lenders. And, oh yeah, it was going to cost me $40, that's 4-0, dollars a month.

Say what?

We got rid of cable or satellite TV, Tivo, our long distance plan. We've eliminated movies, eating out, music lessons, soccer, school lunches, new clothes. We've switched to a cheaper dog food, and haven't bought light bulbs for months.

"$40? I don't have $40 a month," I said, said I. I was disappointed, thinking about those 30% rates. "Can we just put some of the credit cards on the plan? Yes?"

Yes. That will be $15 a month. Cha-ching! I told them I had to think about it. So I thought about it. And I might have done it. But by that time my credit card company had come around (as I mentioned here) and lowered my rate to 10%

The moral of the story for me is that it's much better to negotiate with your creditors directly. $40 a month? Really?

The other thing to keep in mind when working with a credit counselor is that the credit card companies subsidize these organizations. If you follow the money, you will see that the settlement the counselor offers may be one that is not in your favor.

Polly's Pointers:

1. Try working with your creditors directly first.

2. If you do work with a credit counselor, make sure they are affiliated an organization such as the National Foundation for Credit Counseling.

3. Avoid paying someone to "repair your credit" or help you get out of debt.

I know that some of those organizations are served by my own Google Ads, and I wish I could tailor the ad services to screen them, but organizations that prey on the desperate and downtrodden are pathetic. Research the organization you are working with to make sure they are legitimate. Don't be afraid to talk to a number of people. You may even want to leverage your conversation with the original lender.

4. Debtor beware. Some of these places run out-and-out scams! They take your money, charge hefty fees, and never pay the creditors leaving desparate debtors worse off than before! Now here's the place in financial crisis where shame belongs.

Further Reading
Profit Possibilities by Elizabeth Warren, blogging at Credit Slips
Debt Relief Can Cause Headaches of Its Own