Pros & Cons of Debt Relief Companies

Debt Consolidation Programs: Are They Worth It?

For many people, debt consolidators provide a valuable and fair service – there are countless others, however, who sink money into a debt consolidation loan that feels more like a scam.

In the best light, a debt consolidation company combines multiple debts into a single monthly payment for you. The goal is to simplify debt and lower the interest rate – but there are a number of serious pitfalls to be considered. Contact the Law office of Steven R. McDonald before you decide to go with a debt consolidation company. We have free consultations to go over the facts of your case, so you can rest assured there is no risk involved.

Milwaukee Area Bankruptcy Attorney Explains Pros & Cons of Debt Relief Companies

As a Milwaukee area law firm specializing in Wisconsin Chapter 7 andDebt consolidation program options Chapter 13 personal bankruptcy, we understand how stressful and confusing it can be to find the best solution for debt problems.

File for Chapter 13 bankruptcy for credit card debt

If you’re feeling the weight of debt and pressure from debt collectors, you may be tempted to turn to one of those debt relief companies you hear on the radio and TV. It seems like a good idea—you’ll have those nasty bill collectors off your back and have payments you can actually afford. It must be better than declaring bankruptcy. Right?

Think again.

Are Debt Relief Companies Legitimate?

Some are and some aren't. The hard reality is there are scammers out there masquerading as good people.

Even with legitimate debt consolidation companies, there are some serious downsides. Our Milwaukee bankruptcy lawyer explains the differences between debt consolidation, debt settlement and debt management.

·          Debt consolidation

Debt consolidation usually involves getting a low-interest loan to pay off higher interest debts—typically credit card debts with interest in the neighborhood of 20% and higher.

·          Debt settlement

Debt settlement involves a company negotiating with your creditor to reduce the amount you owe—for a fee, of course. The debt settlement company pays off the debt in a lump sum, then has you make monthly payments to them.  Beware: these programs are rife with scammers!

·          Debt management

Debt management programs offer a combination of credit counseling and debt settlement. Debt management companies negotiate a payment plan with a lower interest and consolidate your debt, but do not reduce the balance you owe.

Bankruptcy vs. Debt Consolidation

While both methods aim to revive your financial outlook, bankruptcy and debt consolidation work in very different ways.

For starters, bankruptcy is conducted within the framework of the court system. Simply put: You’re afforded certain rights. Debt consolidation companies don’t have the same type of oversight. They’ll take your money every month (usually with interest) without any guarantee they’re using it to actually pay off your debt.

And while bankruptcy often requires the liquidation of assets, it also brings an immediate halt to harassing phone calls from creditors. There are legal fees associated with hiring a bankruptcy attorney, but compare that to the real cost of continual interest charges. You'll likely find an attorney is the more affordable option.

Getting a fresh start through bankruptcy may be the most important factor to consider. Bankruptcy is like getting a fresh financial slate. Consolidation companies can’t offer the same new beginning. They require years of interest-laden payments while your debt still remains active.

Are Debt Relief Programs Worth It?

Trouble is all these debt relief approaches have you on the hook for hundreds of dollars in payments every month—with no accountability whatsoever.

You have no idea if they’re even using your money to pay your creditors or not. Usually, the debt relief company takes their cut of the money they get from you every month, then stashes the rest until they have enough to offer a lump sum settlement to your creditor.

Even after dutifully making payments for years, there is no guarantee your debts will be settled. Meanwhile, your creditor can (and usually does) start a lawsuit against you. Even if you’re fortunate to have a large part of your debt forgiven, did you know you will be liable for taxes on that amount?

Debtor Beware: the Truth About Debt Consolidation in Advertising

Something else to consider: Despite what these debt relief companies say in their advertising, the monthly payment programs they come up with are usually never anything close to what most people would consider “affordable.”

Once you're stuck making monthly payments to a debt consolidation program it takes many years to get in the clear again. To make matters worse, a lot of these debt relief “services” insist on automatic withdrawals from your bank account.

Meanwhile, your creditors are still charging you interest and collectors are still harassing you day and night. 

That’s debt relief?


Debt Consolidation Companies

Legal process overseen by bankruptcy court

Financial service offered by private institutions

May require the liquidation of assets to pay creditors

Does not typically require asset liquidation but may not fully absolve debt

An immediate stay is placed on debt collectors

Debt-collection attemps continue

Legal fees

Continue to incur interest charges

Provides a fresh start

Debts remain until fully paid off

Considering Using a Debt Relief Company? Read This:

Before you hand your financial future over to one of these debt relief companies, make sure you know what you’re getting into. Despite everything you’ve heard about how bankruptcy is something you want to avoid, it may actually be the best option for many people. Decades ago, declaring bankruptcy carried with it a mark of shame. Times have changed, though.

How Bankruptcy Can Provide True Debt ReliefWisconsin bankruptcy consultation

Today, bankruptcy isn’t the end of your financial life. It’s a fresh start on a new one. Financial debt can be discharged under Chapter 7 bankruptcy or consolidated in a repayment schedule under Chapter 13 bankruptcy—with the court’s supervision, so you know your payments are actually going toward your debts.

Unlike the “debt relief” programs covered here, filing for bankruptcy in Wisconsin puts an immediate stop to harassing bill collector calls, repossessions and foreclosure.

Free Personal Consultation with Experienced Bankruptcy Attorney

Before you make a decision based on what a commercial said, or what someone else did or told you, get some advice from a Milwaukee bankruptcy attorney with extensive experience in legitimate debt relief solutions. The bankruptcy law office of Steven R. Mcdonald offers free bankruptcy consultations with no obligation. Everyone’s debt problem is different. We’ll help you sort through all the options available so you can make the best choice for your financial future.

McDonald's Law provides debt relief consultation services to clients in Oak Creek, Franklin, Greendale, Cudahy, New Berlin, Hales Corners, Racine, Muskego, Milwaukee, South Milwaukee, and beyond. 
Contact us today to schedule your FREE, no-obligation bankruptcy consultation.

We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.

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