Q. I have $30,000 of credit card debt and I have no problem making the minimum payments and even more sometimes. However, I want to get this debt paid off quickly to free up some cash for other things and I was thinking about going to a debt consolidation firm. Will this negatively affect my credit or should I just keep paying off the debt on my own?
A. It’s terrific you’re getting on top of your debt situation, but debt consolidation isn’t necessarily the answer for you.
Debt settlement companies are mainly used by consumers who are behind on payments and struggling to save their credit, or for those who cannot afford the minimum payments. These companies will attempt to negotiate with your creditors to reduce total debt owed and lower monthly payments.
First, you could do much of the work promised by a debt settlement company on your own: You can call your credit cards and negotiate. Ask for lower interest rates, for example, rather than paying a debt settlement company to do it for you.
Part of the problem is the Brain doesn’t have a lot of trust in these companies. They charge a hefty fee for something you could take care of on your own. Read more in Star Ledger.
Have you ever thought of actually paying back the money that you borrowed?
What a nutty society we have become!
Debt consolidation is as harmful to your credit as a bankruptcy; in some ways moreso (people emerging from bankruptcy typically begin receiving credeit offers within 12-18 months). If you’re going to consolidate, unless you have significant other assets that you wish to protect, you’re likely better off simply declaring bankruptcy and taking advantage of a fresh start.
My husband tried this with disastrous results! His credit score went down the tubes, and yrs later still is. The company he used kept missing payments to the credit card companies or paid late so we kept getting late fees etc. So please be careful before taking this step!