Debt Consolidation: opinions and suggestions -[Vanity]

Since I value the opinions and views of the members here, I figure I would turn here for some advice on an issue I have been pondering. I have talked with my wife about getting into one of the debt consolidation services that seem to be so widely popular these days.

I hear good and bad things about it and want to get as much info as possible about it.

Doing a few days worth of research has uncovered alot of info, but I'd like some (hopefully) trusted opinions, suggestions, and even personal accounts (if any wish to share them).

Thanks.

Generally I recomend against it. I have had too many clients who have been screwed over by it and had to file bankrupcy anyways. The absolute worst was a client who had items which would have been beyond the statute of limitations and the agency restarted the statute with a reaffirmation agreement.

These agencies are middlemen collection agency. They get a cut. BTW the IRS is cracking down on some of the nonprofit agencies which are actually profit.

Anyone considering this should be very very careful. One trap is starting out one payment behind because the first payment goes to the agency and not the creditors.

Just the way those consolidation outfits do their marketing smells bad.

Also watch out for those second mortgage loan sharks. If there's any chance you won't be able to make every payment on time, don't do it. If your credit is undamaged and you have sufficient equity, getting a new first might be a good idea. Just be sure and tear up that plastic at the same time.

But recognize that if you're in trouble, your particular circumstances might make the B word the best choice, especially if you have a home you don't want to lose. It's better than lawsuits and judgements, and things like garnishments that may lead to missing more important payments like the mortgage, and so on. I know several people who have done it and they seem to have no trouble obtaining credit.

I am a financial analyst who helps people get out of debt. Without knowing your situation, its hard to give specific advise but one thing you might want to consider instead of consulting one of the services you mention (I've heard bad things about them as well) is debt "stacking" or debt acceleration.

Debt stacking is really quite simple. You arrange your debt in order from the least amount owed to the greatest. You then pay the minimums on all of the debts except for the smallest one. If you can, add an additional $10, $20, $50 per payment to the minimum payment on the smallest debt. Whatever you can reasonably afford.

Say your minimum is $30 and you can afford an extra $20. You pay $50 on this smallest debt until it is paid off. Then, you take that $50 payment and add it to the minimum payment of the next smallest debt. Say the next minimum is $70. You will now pay $120 per payment until that debt is paid off and so on and so on, until all of your debts are paid.

This approach usually knocks years if not decades off of debt payments saving thousands upon thousands of dollars of interest payments and best of all, it doesn't cost you a thing beyond the acceleration amount. I have done it with my own finances and it really does work with just a minimum amount of self discipline.

One last thing that you need to do in order to get out of debt and stay out of debt is set up an emergency fund. It can be a savings account at your bank or a money market mutual fund, whatever. It is recommended that an emergency fund have at least enough money to cover 3 to 6 months of your expenses were you to encounter some financial hardship. Without an emergency fund, the very next time your car gets a flat or you have an unexpected medical bill, you'll go right back to the credit cards and add on further debt. This is a critical final step in getting out of debt that many financial institutions do not emphasize enough.

Hope that helps.

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