Debt Consolidation

Debt consolidation is when you hire a company to manage your debts for you. You make one payment every month to that company. The company pays your various creditors.

This has some similarity to Chapter 13 bankruptcy, but it is not a bankruptcy. Because it is not a bankruptcy, the court does not monitor the repayment plans and protect you from creditor law suits and garnishments during the repayment period. Finding a safe and honest debt consolidation company is 100% up to you.

Be Careful!!

There are a great number of scam companies out there that do nothing for you but take your money, waste your time and further destroy your credit.

The best debt consolidation companies will do the following:

  1. Charge very low fees have realistic repayment plans that you can afford, and recommend bankruptcy if it is best for you.
  2. Have arrangements with credit card companies where the credit card companies suspend interest and late fees during the repayment period.
  3. Find a realistic affordable plan for you help you stay on top of your payments with reminders and easy payment methods.

Example of Debt Consolidation

You owe $5000 to five different cards ($25,000 in total). A good debt consolidation company will negotiate a zero or very low interest rate with all five card companies. You will pay $30,000 over the course of five years. This will include the interest and fees. That payment will cost you $500 per month.

If you miss a payment of a few payments, the deal is off. You are back to square one.


The danger with debt consolidation (other than scam companies) is that sometimes even the best companies will set up an unrealistic plan for you, a plan that did not consider your real day-to-day expenses, a plan destined to fail.

If you qualify for chapter 7 bankruptcy, you can wipe out the $25,000 instantly. It will cost you MUCH less than debt consolidation and you will be able to recover your good credit comparably as fast. Don’t waste your precious time and money before at least weighing the options with a bankruptcy expert who also knows about debt consolidation.

Make sure to read the comparison of different options on your credit score.