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Question: Is debt consolidation okay?

(Posted by: tabatha r on 2010-07-27 07:16:11)

I have about $3400 in debt I need to get paid off and I have decided to go to CareOne Credit to help me with this . About 2 of my accounts are charged off, and are currently in third- party debt collectors. CareOne credit had said they send out proposals and they do deal with collections agencys as well so i should be just ok with this. One of my debt collectors are dealing with Creditors Finacial group and they are extremely RUDE and just want to make me pay the full amount and threatening to sue me over $700...what should I do? Ever since I made a payment of $50 thats all they say they could take but must take the $227 instead...this is very frustrating. I said I could pay the $50 a month but thats all I could pay. I never heard of a debt collector not willing to take any kind of payments whatsoever. What should I do with this?

Posted by: Alex on 2010-07-27, 18:25:50

Debt consolidation means your paying another company to do what you can do yourself for free. I'm not familiar with CareOne Credit, but many consolidation companies are scams. Research reviews online. First, keep up with the accounts not in collections to avoid late payment fees and another collections account on your credit report. Collection accounts remain on your credit report for 7.5 years whether they're paid or not. Paying them off will avoid lawsuits and stop the calls, but it won't do much for your credit score. They won't sue for $700; it would cost them more for the fee to file lawsuit and paying a lawyer. Next, start saving money and research debt settlement. Collectors are more likely to settle accounts for a lump sum rather than agree to a payment plan. The collection agents are paid commissions on what they collect. Please research settling because I don't know all the caviats, but: always get agreements in writing before sending money and never give them access to your bank account. Be aware that the IRS will consider the "forgiven debt " as income and require you pay taxes; forgiven debt is the difference between the account balance and the settlement amount. Collections are supposed to send a 1099-C reporting the amount; even if you don't receive it, the IRS will and will notify you of the taxes plus penalties in a year or two (personal experience). Many collectors behave outrageously. Treat it as a business transaction and try not to take offense, I know it's nearly impossible but try. Check out the Fair Credit Reporting Act for stipulations on what collectors can and can't do. If they are violating the law, get proof and report them. Once in collections, an account will be sold repeatedly to other collection agencies. If one doesn't accept a settlement offer, wait for it to transfer to the next one (and keep saving & paying the current accounts). Once you're through this crisis, check out DaveRamsey.com for lots of free budgeting and personal finance advice. I've been in your shoes, clawed my way out of it then found him; his advice has changed my way of thinking, especially the "baby steps " program.

Posted by: Dash on 2010-07-27, 07:25:42

It is your option other then bankruptcy. Take it and realize you are paying for this service. Debt collectors do NOT have to accept your small payment since it does not lower your debt nor even cover the interest.

Posted by: Ghost of Zeuz on 2010-07-27, 07:26:50

You will never be sued for $700. Your best bet is to tell the debt collector to cease contact with you. Eventually it will be sent to another collector who will be more reasonable.

Posted by: smogthis on 2010-07-27, 07:28:20

Debt consolidation is handled through a third party which begins with the financial entities that hold the original loans. They usually offer the one with the debt the option of a lower monthly payment and the financial company guaranty of payments. Though this may be attractive option to one with a difficult situation, be aware that this looks negatively on your credit, which will affect APR percentages, and future loan limits and loan availabilities. I suggest the advice of a professional financial counselor from a trusted bank for expert advice as to what all your options are and to which will provide your personal preferential outcome.

Posted by: Jay P on 2010-07-27, 09:18:42

Debt consolidation and reduction almost never works. They are often scams. The ones that aren't scams are run poorly. You never get the results that you want. Additionally, they charge huge fees and rates. Think about it. Their entire business model relies on lending money to people with bad credit who are in debt. Finally, the debt settlement agencies do so by trashing your credit worse than it is now. I have to be honest with you. $3,400 changes your life. In the grand scheme of things, this is not a lot of money. It's time for that second job. Knock this out in three months and be DONE! You can make $1200 a month delivering pizzas or something. It's not going to be comfortable, but you can do this.