Frequently Asked Questions

Debt consolidation is a repayment plan arranged between your creditors and a debt consolidation company whereby all of your unsecured debt is paid off in approximately 60 months.

No. Debt consolidation is an ALTERNATIVE to bankruptcy . Rather than having bankruptcy prevent you from obtaining a loan for the next two years, debt consolidation allows you to avoid this stigma.

Accounts undergoing debt consolidation will show up as a "07" or be marked as "Undergoing consumer credit counseling." How this is interperted depends upon the previous state of your credit and who is looking at the credit report. For example, a consumer who routinely runs 60 or more days late in his payments, yet joins a debt consolidation plan and makes six months worth of payments on time will be viewed in a positive light. On the other hand, a consumer who is never late, but joins a debt consolidation plan and then misses his first payment (even if it is due to a gap in the payment cycle while switching between paying the credit card companies directly and paying the debt consolidation company) will be viewed in a much more negative light.

No. Although you can get a loan for purposes of consolidating your debt, this is not the same thing as debt consolidation. Debt consolidation is a repayment plan negotiated between you and your creditors. Your unsecured debt remains unsecured. Your equity in your house remains unencumbered.

A debt consolidation loan is a mortgage on your house, or another piece of real property, used to clean balances off of your credit cards by rolling them into the mortgage.

By utilizing a loan to secure your debts you instantly pay off high interest rate credit cards with a low interest rate loan. Additionally, your credit rating begins improving almost immediately because you will no longer be late on any of your trade lines (credit cards).

Your credit card debt will now be secured by your home. Now, if you miss your mortgage payments you can lose your home. Additionally, many consumers that use a loan to eliminate their credit card debt find themselves running up those credit cards again in as little as six months after they took out their loan. Therefore, the discipline of completing a debt consolidation program may be more effective in the long run.

Debt consolidation companies are able to immediately reduce your total monthly payment by up to 57%. This benefit arises from the debt consolidation companyÕs agreements with your creditors to lower your minimum monthly payment from ~4-4.5% of your outstanding balance all the way down to 2-2.5% of your monthly payment.

No. The power to pay off all of your credit card debt in only 60 months comes from utilizing the funds that were being allocated to pay off small-balance cards to pay down those high-APR cards quickly. For example, if your monthly payment was $280 split between a $200 payment for a high-APR, high-balance card, and $80 for a low-APR low balance card, that low balance card will be paid off first. At this point, rather than dropping your monthly payment to $200, that additional $80 will be used to attack the balance on that high-APR card. This process can be used to take years off the term of your debt consolidation program.

Yes, although not likely. Your creditors may change their policies and outlook towards consumer credit counseling. Additionally, during the set-up phase of the program, minimum payments are occasionally increased for clients who have higher balances than stated during their initial counseling sessions, or due to the change in the payment cycle from when a client goes from paying his bills directly to paying through the debt consolidation company. Usually any changes in minimum monthly payments are made during the first three months of the program and then the payment remains stable for the rest of the program.

Yes. A debt consolidation company can save you money by eliminating late fees, over the limit fees, and some finance charges.

A debt consolidation company works with your creditors to reduce your APRs, sometimes even eliminating them. Consequently, where you might have been charged a 24.9% APR on that store card before, now you will be paying as little as 8.9% APR, or maybe even 0% APR! Some creditors will continue to record interest charged to you at their full rate, but will waive *ALL* of the interest once your original balance is paid off. These are ways that your debt consolidation company can save you a lot of money when compared to the interest you would pay if you were simply making minimum monthly payments on your own.

While you will enjoy a lower monthly payment immediately, your real benefits will take approximately three months to kick in. This is due to the processing time required by your credit card companies to communicate with your debt consolidation company, as well as how proactive your debt consolidation company is.

After you complete three full monthly payments on time, your debt consolidation company will petition your creditors to re-age your account. This is the process by which your creditors report to the credit bureaus a correction to your credit report, marking all delinquent accounts as though they are current.

Under most circumstances consumers are limited by federal law to having any individual account re-aged no more than once per 12 month period. The purpose of this is to ensure the sanity of the credit reporting industry, maintaining lender faith that these reports are an accurate depiction of a consumer's current behavior patterns.

No. Although all debt consolidation companies must play by the same rules determined by creditors, regulatory bodies, and law, the level of initiative and customer care can vary wildly from company to company. While all debt consolidation companies are required by creditors to be IRS recognized 501(c)3 Non-Profit companies, some companies implement this requirement by spending almost all of their revenues on servicing their clients. Other debt consolidation companies devote a sizeable chunk of their revenues towards executive salaries, or high dollar contracts to "independent" for-profit entities. A consumer would do well to research the company's history with the Better Business Bureau as well as non-profit reporting organizations such as www.guidestar.org.

Regulation begins at the state level. Each state has its own laws regarding minimum levels of service a debt consolidation company must maintain in order to operate within that state's borders. Next, at the federal level bankruptcy reform legislation is going to add a second layer of requirements that the debt consolidation companies must follow. Additionally, the IRS has requirements that must be met to maintain a 501(c)3 Non-Profit tax status. The industry itself adds additional regulation through the many individual creditor policies and client-servicing contracts between the creditors and the debt consolidation company. Finally, the biggest creditors require debt consolidation companies to become ISO 9001:2001 certified by BSI.

The first answer is *ALWAYS* the debt consolidation company with which you are working. Many times customer grievances can be easily corrected via correspondence with the company's customer service department. Additionally, this correspondence will provide the documentation you require to take your complaint to the next step if this becomes necessary.

The next step is to bring your complaint to the Better Business Bureau. All BBB complaints are placed on the public record, and many companies feel it is very important to keep their company's name clean, so they are very motivated to respond to any BBB complaints they incur. Additionally, this provides even more documentation of your problems, and whether relief was attained or not.

After giving the BBB a chance to work on your complaint, your final hope for satisfaction lies in contacting your state's attorney general's office. They are usually the point men in working to eliminate corrupt or negligently inefficient debt consolidation companies.

Question not answered here, feel free to ask our credit counselor your question.