Be Wary of Debt Consolidation Companies

Since the economic meltdown of 2008, many consumers are so deeply in Debt that it is not possible to repay the loans without changing the payment arrangements.  A considerable number of consumers have found bankruptcy to be a viable option, especially since the stigma against bankruptcy has been fading since the 1970s.  However, some consumers are utilizing the services of Debt Consolidation Companies, which can be risky. 

Memphis TN Debt Consolidation | Law Office of John E. DunlapDebt Consolidation is defined as combining all Debt together and one payment with one interest rate either through a home equity line of credit, Chapter 13 bankruptcy (Wage Earner) or a Debt Consolidation Company.  This makes the payments easier to manage and often makes the monthly payment smaller by extending them over a longer period of time.  In a Chapter 13 bankruptcy and some Debt Consolidation Companies, the Debtor makes payments to the Chapter 13 trustee or the Consolidation Company, which then makes the payments to the consumer’s creditors. 

While Debt consolidation has a rather high success rate under Chapter 13 bankruptcy, using a Debt Consolidation Company to consolidate Debt does not provide the oversight of federal court and can be a big risk. Many of the Debt consolidation companies are for profit companies, though there are also nonprofit companies.  These companies offer loans to the consumer to cover the cost of Debt repayment, and then take of the responsibility of repaying the person’s loans.  Instead of paying each creditor separately, the consumer makes one payment to the Debt Consolidation Company.  The interest on the new loan is lower than previous Debts but since Debt Consolidation Companies make their money on interest, companies often stretch payments out over longer than necessary periods of time.  Often the total for the Debt consolidation loan is higher than the original loan. 

In addition to extending payments to cost more interest, Debt Consolidation Companies also charge consumers a monthly maintenance fee.  This can be as much as 18 percent of the consumer’s total monthly payment.  Moreover, if the payments are not made in a timely manner, the consumer’s credit report can be damaged further. 

Lastly, unlike Chapter 13 bankruptcy, creditors can refuse to work with the Debt Consolidation Company, leaving the consumer with an extra Debt payment in addition to the payments of the firm. It is also perfectly legal for a creditor to withdraw from the repayment plan at any time.  There are much better ways to consolidate Debt than employing the services of a Debt Consolidation Company.  It is not unusual for a Debtor to be in a worse financial position at the end of the consolidation.  If you are currently under financial distress, please seek the advice of a bankruptcy lawyer prior to entering into an agreement with a Debt Consolidation Company.

If you’re under financial distress from Debt, call us today for a free consultation at (901) 320-1603.