The Truth About Debt Consolidation Programs

Taking a Good Hard Look

Look at those websites!!! Can this be true?

Can these companies really reduce your debts by 50%, maybe more?!

Can they really consolidate all of your outrageous monthly payments into one low monthly payment and then force your creditors to eliminate the penalties and late fees that they’ve been charging as you miss your payment dates and then they’ll even clean up your credit report?

You’ll have a great credit history and you’ll get out of debt in a fraction of the time that it would ordinarily take you even if you hadn’t screwed up! WOW!!!!

Are any of these claims made by debt consolidation companies true?

Some are, others aren’t.

One of your jobs will be to navigate through the scams to find one of the few reputable ones that exist.

Reputable and decent debt consolidation companies do exist and they won’t make claims that fail to stand up under inspection, and those that they do make tend to be worded in such a way that you’re unlikely to be mislead.

I have worked in this industry for the past 10 years and believe me I’ve seen and heard it all.

Many of these companies that you see online, on TV and that you hear advertisements for on the radio are boiler room style telemarketing companies.

The “counselors” who work at these companies work on a commission basis and many earn bonuses for the amount of new deals that they pull in each month.

Most of these companies boast about their BBB online reliability rating and the fact that they hold a not for profit status. The truth about these companies is both shocking and disheartening.

Real debt consolidation companies work with your creditors to get your bills under control.

The operative words here are work with not fight to get you a good deal.

(If they got tuff with the creditors the creditors would hang up on them!) Very rarely will a consolidation company be able to lower your payments or interest rates by 50%.

Those claims are what the creditors used to do for people several years ago and since then they’ve changed their policies considerably.

Many of the claims and much of the information that I see on debt consolidation companies websites is either a complete fabrication or very old and outdated information.

Each creditor works differently with the consolidation companies but they all give the same benefits to every company. They don’t give a better rate to one debt consolidation company over another. The differences in these companies are in the quality of work that they provide to their clients. Problems arise because MANY of these debt management/debt consolidation companies drop the ball with regard to how they deal with their clients and follow through with the creditors. One of the biggest complaints out there is, “They won’t return my calls!” but believe me this is just one of many serious problems within this industry.

Another issue is competition. There are so many of these companies out there and they all want your business so many of their reps will sell you a song to get you to sign with them. Remember what I said, the creditors all make the very same arrangements with all debt consolidation companies, quotes should not differ by more than a few dollars from company to company.

Competitive forums like this are a breeding ground for low balled monthly payment quotes that offer payments to the creditors that they won’t accept and then bump up letters for you after you send in your first payment. These bump up letters will state that the creditors have changed their policy and that they will now require a larger monthly payment in order to give you the benefits of debt consolidation. So your monthly payment to the debt Consolidation company gets larger and larger until suddenly it no longer resembles the payment that you agreed upon when you signed up. Can you say SCAM?

As I said each creditor has a list of demands and a set list of benefits that they will extend to the client if these demands are met. The creditors will require a certain percentage of the balance owed as a monthly payment and sometimes they will ask for a certain amount paid to them up front before the program commences, this depends on what the clients situation is and what their payment history looks like at the time of contact with the creditor. This is the negotiation process. In exchange for timely payments made by the client through the consolidation company they will eventually reage the account to current status and wave much of and sometimes all of the past due fees and penalties.
The payments that the creditors will accept differ from creditor to creditor. They are rarely 50% of your normal payment. Payments are made according to the creditors demands. Some want 3% of the balance that you owe them at the start of the proceedings, some 2.5% and so on; some of the creditors will not reduce the payments at all. You need to understand that the debt consolidation company has no say in what the creditors charge. If the consolidation company proposes a payment that is less than what the creditor requires the creditor will continue to charge fees and penalties until a proposal with the correct amount is submitted. The ball is really in the creditors court but the majority of them will extend some type of benefit as long as they get what they want and any relief at all is a score for the client.

It’s also true that a debt consolidation company will work with your creditors in an effort to reduce the interest rates that they charge but only on those debts that are unsecured such as credit card debt, personal (signature) loans and medical bills, disconnected utility bills, collection agencies etc. meaning that they won’t work with a mortgage lender, car loan, or outstanding connected utility bills or taxes.. Even when these companies are able to get concessions out of your creditors, it’s rarely the case that they can get your creditors to reduce your rates to anywhere near what the majority of their ads claim.

Many debt consolidation companies claim that they will work with your student loans.

DO NOT INCLUDE STUDENT LOANS IN A DEBT MANAGEMENT PROGRAM. A student loan is a federal loan and nothing about it can be changed by a debt consolidation company. The folks who work for these student loan companies are some of the nicest people that I’ve ever dealt with and they will work with you. Go into my links section of this website and get their phone numbers from their websites. Do not fear dealing with them just give them a call and tell them that Katie sent you! Seriously, handle these accounts separately. The counselors at telemarketing style debt consolidation companies may want you to include these debts but that is only to make their commission larger.

As I said earlier the debt consolidation companies can usually convince your creditors to waive much of the interest and late fees already imposed, but that won’t prevent them for doing so in the future, if you make late payments to the debt consolidation company after you start the program the creditors WILL charge late fees and penalties even though you are on the program. Yup, you’ll be right back to square one and they won’t care if you are late because of unexpected car repairs or that the kids needed school clothes any more than they care now. Starting a debt consolidation is a commitment from you to turn over a new leaf in exchange for help and a fresh start.

And what about the phone calls? Well, they’ll probably stop, after a while. What about the claims that they can rebuild your credit history? The truth is that only you can rebuild you credit history by living up to your financial obligation and getting your bills paid on time every single month. After being on a good debt management program your accounts will eventually be caught up and current as long as you are doing your part and paying the program on time each month. Again, it’s all up to you.

debt management/debt consolidation programs offer structure and they act as a buffer between you and your creditors. They do provide a service, they eliminate stress and once the ball gets rolling you will feel much more in control and on top of things but these programs are not magic. It usually takes several months (3 to 6 depending on your situation) before the phone calls stop and your statements look normal again. This can be very stressful especially since when the “counselor” signed you up for the program you were probably told that the calls would stop and your statements would straighten out within 30 days.

Not all debt management/debt consolidation companies are dishonest (I think most of them are but not all) and the companies that are honest with their clients are providing a legitimate service and they do charge fees to do it. Yes, they are mostly made up of not for profit organizations but all that means is that they are in a certain tax bracket it has nothing to do with being free. In order for these companies to pay their employees and keep the lights on they must charge a monthly service fee. These fees can range from 5 or 8 dollars per creditor to 15 to 49 dollars per month depending on the amount of debt and the number of creditors that you include in the consolidation. Most companies even charge one payment up front to get the ball rolling. Standard practice within the industry is that, that payment is returned to you if and when you complete the consolidation and all of your balances are zero. If you drop out of the program early you would then forfeit that initial payment. Many individual states are now involved with this process in an effort to protect their residents from dishonest debt management programs. These states are now regulating how much these programs can charge as monthly service fees and up front payment fees. Because of this we are now starting to see a few of these fraudulent debt management companies disappear. (HOORAY!)

As a retired Credit Counselor I feel that monthly service fees in exchange for work done on your accounts is both fair and just and I know that it’s necessary. These people who work at the debt management companies do a lot of work on these accounts. There is a whole lot of record keeping and follow up to do and they do earn their money not to mention all of the money that you will most likely be saving by the elimination of fees and penalties and the reduced interest rates. When I was actively working in the field I used to have my potential clients pull out a calculator and we would go over all of the numbers together as far as how much money that they would save in interest and fees verses what they are paying now and even with the service fee the savings was quite substantial. Another commonly over looked factor is that a good debt consolidation company has established relationships with the creditors and that does make a difference when dealing with your accounts. The debt consolidation companies employees deal with the employees at the creditors offices all day long 5 days a week, they are often times very friendly with each other and when you look at the big picture that could work to your advantage.

None the less, some folks have a problem with the service fees and a payment as a start up fee. My answer to that is, use the information on this website and give dealing with the creditors on your own a try. The truth is that you can probably do it yourself. I’ve been doing it for 10 years and believe me it’s not hard but there is some work and record keeping involved. I have provided you with a step by step instruction link to show you how to cope with the stress that you may initially feel about making the calls and how to speak with the creditors representatives. If you try and find that you can’t do it on your own then paying the fees will be justified. Either way I hope that this website helps you to get out of debt and to get back on the right track.

Once again I would like to state that all of the information on this website is free information and intended for educational purposes. I am not an attorney and none of this content is intended to be legal advice. I am a retired Credit Counselor though and I’ve seen it all!!! Boy do I have some stories to tell! Sorry, but I can’t name names or get specific about any of these companies or I’d get into trouble. (So please don’t ask me about any particular companies.)

I advise anyone that is seriously looking into a Debt Management Program to check out the company that they intend to use with their State Attorney Generals Office and the Federal Trade Commission before they commit. Even if the company in question boasts that all of their counselors are certified and trained and they show a BBB emblem on their website or paperwork and yes, even if they state that they are certified by ISO, BSI or any other organization. I feel it is more than necessary for you to make a few calls and check them out. I have my reasons for advising you to do this so please, JUST DO IT.

If you would like for me to refer you to a debt management program please first read my Ask Katie About Debt management Forum for specific questions and answers about debt management, while you are there feel free to ask your own questions. All questions will be answered and the best ones will be anonymously posted. After that if you are ready fill out the debt management Application. Fill the form out COMPLETELY and then get all of your materials together. I will then refer your information to a reputable debt management company.

Keep in mind that any company that I refer you to will be aware that you have read all of the information on my site and that you are up to speed regarding how debt consolidation works and what to expect. In the same respect the debt management company will be expecting you to have all of your materials together and be serious as well as ready to move forward before a counselor calls you. This is not to say that you are under any obligation to the company at that time, you will be getting a free quote and advice but the counselor will be prepared to and expecting to move forward so if you fill out that application you need to be in the right frame of mind.

This website is designed to help you the consumer but it also serves a purpose for the reputable debt management companies that I refer potential clients to as well. Potential clients that come from this site are prepared and informed people that are ready to change their lives and my applications are heavily sought after by the few and very select debt management companies that I have maintained a relationship with. It is always a good idea for married couples or partners to be together on separate phone extensions if possible at the time of your conversation with the counselor.

Now let me say just ONE MORE TIME, you can probably do this work and negotiate with your creditors on your own and this website does give you wonderful, easy to use tips to do just that. Whatever you decide to do I wish you the best of luck and warm wishes for a bright new debt free future!