Should I go with a Credit Consolidation Company?


Many of our clients ask us about debt consolidation companies and how effective they are.  The short answer is… they’re not.  Debt consolidation companies or “credit counseling agencies” are usually scams that are simply trying to get consumers to send them money.  Naturally, there are a few companies out there that are legitimate but even they can’t do much for you.  Even legitimate debt consolidation companies would have you believe that they know ways to get around your debt and drastically reduce your monthly payments.  The truth is, all debt consolidation programs do is call your creditors and ask if they would be willing to work with you.  Creditors have every right to refuse them and they usually do.  At best they will get your interest rate reduced but usually any savings from the reduced interest are swallowed up by the fees you paid to the debt consolidation company.

The moral of the story is the debt consolidation companies don’t do anything that you can’t do yourself.  For the most part if a creditor is willing to work with them, then they’d be just as willing to work with you.  So before you pay your hard earned money to a company that promises to reduce your debt, call your creditors on your own, let them know that you’re not in a position to pay you in full and see what they will do for you.  Don’t get your hopes too high though, it has been my experience that they will usually tell you there is nothing they can do.  Granted, this approach seems counter-intuitive to say the least.  It seems logical that a creditor would rather take something than nothing.  However, sometimes it is easier for creditors to write off debt rather than spend the time working with an individual debtor that is just one of thousands.  Also, credit card companies can write off a percentage of their losses, so if you originally owed $1,000.00 but by increasing interest rates and charging penalties the credit card company can get that debt up to $5,000.00, then they may be able to write off the original debt and then some and come out ahead.  I have yet to hear a client or even someone I met in an initial consultation tell me that a debt consolidation program worked for them.  In fact, without fail those that have tried it ended up regretting it.  Believe it or not your creditors support debt consolidation companies, anything that keeps a debtor from declaring bankruptcy is a win for the creditor because only in bankruptcy can you truly get rid of your debt in full.

Understandably, readers might think we are biased because of the nature of our position, but you don’t have to take my word for it.  Do a quick internet search and see what people say about these companies.  Better yet, Consumer Federation of America did a report entitled “First-Ever Study of Credit Counseling Finds High Fees, Bad Advice and Other Abuses by New Breed of ‘Non-Profit’ Agencies.”  Take a look at that, the findings may surprise you.

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Contact us for a free consultation to find out how our Utah bankruptcy lawyers can help you really get back on track financially.  801.413.1753 .

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