Quick Answer: Debt management plans through companies like Consolidated Credit Corporation can help rebuild credit by reducing interest rates and creating structured 5-year payoff plans — but paying it off over five years instead of discharging it in bankruptcy costs real money in retirement savings you never get back. However, someone already managing payments well should focus on direct credit rebuilding strategies rather than debt management programs.
Question:
Dear Steve,
I currently owe about $25,000 in credit card debt. I make a decent salary and making the payments is not a problem.
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I was recently looking at a loan through Consolidated Credit Corporation. The interest rate is lower and would allow everything to be paid off in 5 years, but I’m worried about the effect on my credit.
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I don’t have great credit right now due to have defaulted on a spousal consolidation loan and a lengthy divorce. I don’t want my score to get any lower.
Is a program like that offered by Consolidated Credit Corporation a good idea as far as rebuilding credit? Does it look better to leave the credit cards open and just pay them off?
Melanie
Answer:
Dear Melanie,
Thanks for your question. However, it’s a bit of apple and oranges there. A credit counseling debt management plan, like that offered by Consolidated Credit, is a good solution if you can afford your regular payments and are looking for a break in interest rates so you can repay your debt in five years or less — but stretching it out that way instead of discharging it in bankruptcy costs you retirement savings you never get back.
If you’d like to look at all your debt-relief options, use my online get out of debt calculator.
Since you are able to make your payments without a problem it sounds like your issue is more about rebuilding credit than getting rid of debt.
In that case, you need to read about how easy it is to rebuild good credit.
You did mention what sounds like a federal student loan spousal consolidation loan — beware, those are a terrible tragedy and you should never sign up for a new one. See my posts here. With one of these loans, you are wed to your spouse on the loan for life until it is repaid. You are separate but equally liable for the debt and it will be reported on your credit report. Even after a divorce, if the other spouse does not pay the loan you can still be sued over it.
The good news is if your ex-spouse is making the payments, the longer the time in between when it was last in default then the less it will negatively impact you.
Consolidated Credit runs a very competent debt management program. But you have not told me anything that makes me believe you need a debt management program at this time. It sounds like you just need to focus on rebuilding your credit instead.
Dealing With Debt? Understanding your options is the first step. See how all your debt relief options compare — including ones most sites won’t tell you about. The Find Your Path quiz gives a recommendation based on your actual numbers, and the Scam-O-Meter checks any company’s complaint history before you sign. Federal Reserve research shows bankruptcy filers recover faster than those who don’t file.
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