Debt Consolidation FAQ

Q: How do you choose a debt consolidation company?
A: Terms such as "debt consolidation" are used commonly by many companies but the services can can vary greatly. Shop around and look closely at what is being offered to you as a debt consolidation service.

Q: Can I can make a payment arrangement to stop the garnishment of your wages?
A: Yes. You can make payment arrangements with almost any lender or creditor. In fact, they would probably prefer that to the troublesome garnishment of wages. Many companies including health care professionals and even the IRS are willing to set up a payment arrangements.

Q: Should I hire a credit repair company?
A: Even though there are a lot of scam artists out there selling credit repair services, some are legitimate. Of course the decision to use a credit repair company is up to you. Just keep in mind that they shouldn't charge you any money up front until they have performed the services that they agreed to perform as it is the law. Also, you must fully involve yourself in the credit repair process. No credit repair company can successfully restore your credit history without you participating. You should also read and completely understand the contract and be able to get out of it at anytime without penalties or obligations. Finally, you should understand that there is nothing a credit repair company can do that you could not do yourself.

Q: Should I get credit counseling?
A: Be careful before choosing a Consumer Credit Counseling company. Research this option and the companies and make sure you double-verify everything. CCC companies have gotten a very bad name in recent years because of changes in the industry. CCC were started by the credit card companies themselves as another alternative to collect their debt from their clients. These companies usually don't reduce the amount owed but sometimes renegotiate late fees and "over-the-limit" charges. There is a large failure rate of people who participate with Consumer Credit Counseling companies. Because they originate from the credit card industry, Consumer Credit Counseling will only works with unsecured debt, like some credit cards. They don't usually include secured debt, like a mortgage or car loan and there are some credit card companies who now choose to refuse to be included.

Q: Should I arrange a debt repayment plan?
A: In a debt repayment plan, each month you deposit money with a credit counseling service company. Your deposits are used to pay your creditors according to a payment schedule that is developed by your counselor. As part of the repayment plan, you might have to agree not to apply for, or use, any additional credit while you are participating in this program. Some credit counseling services charge very little or nothing to manage the plan. Others, however, charge a monthly fee that could add up to a significant amount over time. Some credit counseling services are funded, in part, by contributions from creditors.

A debt repayment plan will not erase your credit history. Under the Fair Credit Reporting Act, accurate information about your accounts can stay on your credit report for up to seven years. Your creditors will also continue to report information about your accounts that are handled with a debt repayment plan. If you demonstrate a pattern of payments on time, it should help you obtain credit in the future.

Q: Should I use a company to help me settle my debts?
A: Yes. Sure you can do it by yourself but some companies can usually get a larger settlement. By collectively making an offer to a bank to settle much more than just your debt alone, they can get a much better deal.

Q: What should I do if I am deep in debt?
A: Whether it is caused by illness, the loss of your job, or simply just over-spending, a financial crisis of this sort can seem overwhelming, but it often can be overcome. Don't let your financial situation go from bad to worse.

Realistic budgeting, credit counseling from a good organization, debt consolidation, or bankruptcy, are some of your options. Knowing which one will work best for you depends on how high your debt is, if you can discipline yourself, and your prospects for the future.

Please contact your creditors right away if you are having trouble making payments. Explain why it is difficult for you, and try to work out a modified payment plan that reduces your payments to a level that is more manageable. Do not wait until your accounts have been turned over to debt collectors. If they are, the creditors have given up on you, and your credit rating will get even worse.

Q: After consolidating my debt how long will it take to see an increase in my credit rating?
A: There are three credit bureaus. Each of them can take from 1 to 6 months to update each of your accounts. All of them will be sporadic.

Q: Can my wages be garnished to repay a credit card debt?
A: Assuming the state where the you work allows personal wage garnishment, which not all states do, then the yes they can. However, this can only happen after a creditor gets a judgment from a court.

Q: How does settling my debts for less than the total amount affect my credit?
A: If you are already in collections or are really behind., it is not going to hurt much more. The information stays on your credit report for 7 years so it is always better to have paid some rather than none. You could also ask your creditor to put settled but satisfied in writing when you get the settlement.

Q: Should I consolidate my debt with a second mortgage?
A: You might be able to lower your payments by consolidating your debt through a second mortgage or a home equity loan. Think carefully before going this route. These loans require you put up your home as collateral. If you do not make the payments, or if the payments are late, you may lose your home.

The costs of these types of consolidation loans can add up. In addition to interest on the loan, you also pay points. Usually, one point is equal to one percent of the amount you borrow so keep your calculator handy. However, home equity loans may provide you with certain tax advantages that are not available with other kinds of loans.