Debt Consolidation Costs a Lot Over TimeMost of debt consolidation companies get paid by taking a percentage of the monthly payment that you put into the trust account. Taking 10% of the monthly deposit you put into the trust account is not uncommon as a debt consolidation fee. Practically speaking, the longer it takes you to save up a pool of money, the more debt consolidation companies get paid. Debt consolidation companies also cannot guarantee how long it will take to negotiate your debt. If, after two years of pooling money, the credit card companies won’t settle for the amount that you have pooled, then it’s back to depositing more money into the trust account to try and pool a greater balance, all while the continuing to not make payments on your unsecured debts and seeing your credit score decline.
Who Debt Consolidation Works Well For
This is not to say that debt consolidation is always a bad plan. For people who have access to a pool of money to start out (such as an inheritance or gift from family) debt consolidation makes sense because you should be able to settle your debts quickly without missing many months of credit card payments. If you don’t have to pool money over a long period of time, then you can also save a lot in consolidation fees. When you start out with a pool of money to place, the debt consolidation company can begin negotiating your debts immediately so that you have less time you missed payments on your credit. Consolidation may also be appropriate for people who have a lot of extra income each month, so saving a pool of money can be accomplished easily. The problem is that most people who go through debt consolidation do not fit under this category.
Why Bankruptcy May Be a Better Alternative
Most clients who end up hiring my office after attempting a debt settlement program have said that looking back, bankruptcy would have cost them a lot less, been completed faster, and would have gotten rid of all their debt promptly. They often regret not consulting with a bankruptcy attorney early on to understand how bankruptcy may be able to assist them. In speaking to bankruptcy clients who attempted debt settlement in the past, there are some common reasons why bankruptcy was a better alternative for them in the long-run.
