Tell Me Why Is Debt Consolidation Bad?

Through debt consolidation you may have some relief for a shorter period of time and will pay lower amount but for a longer period of time so in that way it is bad, But if you think you will see it help you in solving immediate loan problem.

Edooz- what you can do instead of getting a debt consolidation loan is to apply for credit counseling. If your credit counselor assesses your situation and recommends enrolling your account in a debt management program, your credit counselor will then negotiate with your creditor and request that interest rate would be lowered, as well as remove late fees and other charges. If I'm not mistaken the interest rate that you currently have will be dropped to 15%.

Debt consolidation can also be bad because in some of their programs, your account should be in delinquency!!! and they NEVER stop collection calls!!!

Franny- I believe you were referring to debt settlement. Stopping collection activity from creditors and debt collectors was never really a guarantee of debt consolidation, in the first place. If a debt consolidation company claims that it can do so, it's a highly misleading statement.

If you want the collection calls to stop, you have two options--either file for bankruptcy (which isn't really a good idea, to begin with), or write a Cease & Desist letter to your creditor.

Yes, a lot of people answer the question of why is debt consolidation bad by stating that settlement companies can never get the collection calls stopped. This is true to a certain degree. And cheetoslover is right, that shouldn't be promised in the first place and if it is you are being lied to.

But it is important to understand why the settlement companies can't get the calls stopped. Mainly, it is because of certain laws that are in place that these companies obviously can't overcome.

For instance, under the Fair Debt Collection Practices Act (FDCPA), it states (in general terms) that a third party debt collector must contact the company if they have sent over a signed Power of Attorney form on behalf of the client. But, that does not apply to original creditors. So a debt settlement company could send a POA over to Chase Bank if they are still handling the account for collection, and they have no obligation to contact the company instead. As a result, it is literally impossible to get the calls to stop.

I hope this helps.

why is debt consolidation bad? because it has negative effects on your credit report~!

The fact that you have debt already gives your credit report bad marks. Debt consolidation hardly adds to that predicament, unlike bankruptcy.

When enrolled in a credit counseling debt mgt program, for instance, the creditors will report the account as such to the credit bureau, but it does not have any drastic effects on your credit report.

lurker what do you mean. isnt bankruptcy and debt consolidation equally bad

Not necessarily. Bankruptcy has different effects on one's credit report than debt consolidation. Depending on the chapter of bankruptcy that's being filed, it may take 7-10 years for that to appear on your credit report.

but won't a delinquent account also remain on your credit report for 7 years anyway? so what;s the diff?