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Debt Consolidation. Is it a good idea?

Difference between it and bankruptcy?
Will I affect my credit score?
Have you done it, did it work?

Overall pros & cons.

 
GomezMami2908

Asked by GomezMami2908 at 10:26 AM on May. 26, 2011 in Money & Work

Level 27 (30,173 Credits)
This question is closed.
Answers (7)
  • It's only a good idea if you don't charge another thing or take out any other loans. I'm not sure what affect it has on your credit score. We tried a couple of things but eventually our debt load was too overwhelming and we ended up filing bankruptcy.
    meooma

    Answer by meooma at 11:03 AM on May. 26, 2011

  • It's just a loan you take out to pay off other loans.. just be sure to close the other accts and NEVER open them back up. It shouldn't 'hurt' your credit...but if you increase the amount of debt you're in then your score will lower.
    TheHappyChicken

    Answer by TheHappyChicken at 10:43 AM on May. 26, 2011

  • Right now I have a car loan out, will it affect that? I have always paid all my bills in time, I just want to take care of this before its too late and I can't dig myself out of the debt hole. I ask about the credit score because I would like to own a house in the future and I don't want this to affect my chances in that area.
    GomezMami2908

    Comment by GomezMami2908 (original poster) at 11:09 AM on May. 26, 2011

  • If you go through a debt consolidation company that works to lower your interest rates and negotiates with your creditors, yes, it will effect your credit score.
    MrsMWF

    Answer by MrsMWF at 11:19 AM on May. 26, 2011

  • Is there anyway to do it without going thru a company? Or is that the best choice?
    GomezMami2908

    Comment by GomezMami2908 (original poster) at 11:52 AM on May. 26, 2011

  • Pros:
    One low monthly payment
    One bill

    Cons:
    Most people consolidate their debt and then they go back out and max out their credit cards creating more debt. So it doesn't help. I think the stats on that are seriously something like 95%.
    The low monthly payments are usually not caused by a lower interest rate. They tend to take a loan- say a credit card that you'd have paid off in 5 years, and then drag the payment out over 10. Yes it lowers your payment, but over the long run you're probably paying thousands if not tens of thousands more in interest.
    You get comfortable with the low monthly payment. It's not as nagging to pay it off since it's not eating up as much of your income anymore. Debt should be paid off with urgency.

    I'd recommend cutting up the credit cards. Get on a budget (I bet you'll find wiggle room) and then paying off your debt smallest to largest. Check out Dave Ramsey's book, "Total Money Makeover."
    Erica_Smerica

    Answer by Erica_Smerica at 6:38 PM on May. 26, 2011

  • You can get that book from the library.

    Also a consolidation shouldn't affect your credit score any more than taking out a loan would. A debt settlement on the other hand is completely different than that- and it will for sure affect your credit score.

    There's a Dave Ramsey Fans group on CM that can help you figure out your budget if you need help with that.

    As far as bankruptcy goes- feed your family first, pay the rent/mortgage, pay for utilities, insurance, and fuel- and then work on paying your bills. If you can't pay all your bills then don't. they'll call they'll get mad. And eventually they'll probably sue you. At that point you might be bankrupt. But chances are that isn't today. And a lot can chance in the 6 to 18 months that it will probably take them to get around to suing you.

    Sorry this is so long.
    Erica_Smerica

    Answer by Erica_Smerica at 6:41 PM on May. 26, 2011

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