Does anyone know if using a debt councelor or debt consolidation is good idea or not? My girlfriend asked me to post it..... I think she mostly wants it for her student loans....

Does anyone know if using a debt councelor or debt consolidation is good idea or not? My girlfriend asked me to post it..... I think she mostly wants it for her student loans....

Student loan consolidation is a good idea. Especially now, because the interest rates for consolidation loans are insanely low. If she has multiple student loans, now is a GREAT time to consoldiate. The only thing to make sure is that you do the math and make sure that the sum total of interest payments over the life of the loan is less after you consolidate (which it should be unless they try to screw you.)

As for personal debt consolidation, I've never looked into it, but I see a lot of ads for really shady looking consolidation plans where they lure you in with really small monthly payments for all of your debt, but gore you with high interest payments, or ridiculous balloon payments at the end. I'd be more skeptical of these. If most of her debt is student loans, and she's got more than one, then I'd say definitely do the consolidation thing. My only regret is that I consolidated before the rates went down, and I'm stuck at a higher rate than I'd be at if I consolidated now. (You can only do it once, I think, and I don't think you can get the lower rate unless you consolidate two or more loans.)

Tell her to go to a reputable bank and see what they'll do. You've got a pretty good chance that they aren't going to try to screw you, and it's doubtful that some private organization can do better than a bank.

Note that I am most definitely not an expert on financial matters. It just seems to me that if you're in a situation where this sort of thing starts to seem like a good idea, probably based on late-night ads, then it'd be better to go to a reputable financial institution than to some fly-by-night company who might end up pressuring you and you end up caving in to a bad deal.

I'd say to shop around with banks, too. My main bank was recently offering loans at like 8.5% while my credit union was offering at 4.75%. The generic advice they give will be more-or-less valid, too, even if you mix-and-match advice and loaning institutions. Even if they suggest a third-party debt counselor, you can feel better that it's probably not someone trying to push you into a 20% loan.

I fully agree with Bitt. Debt consolidation is a fiscally sound approach to managing your finances. The things to look at are the usual loan terms of the final offer (one time payments or increases in principal, interest rate, monthly payment, etc.) as well as what you might be asked to put up as collateral. It never hurts to shop around. I recall reading an article about how many of these "non-profit" counselors are really side-arms of for-profit ventures, and the counselors are trained to push you toward a specific set of products.

My own advice: it's better to get a slightly higher interest rate if you have lower closing costs. "Negative points" are the typical way of doing this. If you can refinance in such a way that your principle stays the same and your rate goes down, then it's pretty much a no-brainer. For anything else, you should be able to ask the loan officer to compute for you the "cross-over point", which is to say, the point at which the additional debt you took on by restructuring your loans is paid off by virtue of your lower interest rates.

On a side note, Google is pretty worthless for this search. I've tried Googling for "debt counseling" or "debt consolidation" and it looks like you mostly get people who've managed to jam their results up to the top. I Googled for "debt consolidation caveats" and got much better results, including this article on CNBC, which seems a good read.

Bitt, you're onto it when you mention your credit union. Mine is offering 3.75% on several types of loans, the exact same rate of interest they're offering on 60-month CDs. Sweet!

Mottley Fool always has some good info on financial topics--even debt consolidation if you look past the sponsored links.

I don't know anything about student loans but, in general, debt consolidation is often a great plan for managing finances. I used a consolidation loan to lower my overall payments, reduce my interest, and to give me a plan with an end in sight. Also, if you are undisciplined (like me) then an installment loan with fixed payments forces discipline that a credit card can't.

But be very wary of the Consumer Credit Counseling services out there. These are the ones that sort of take over your bills and you send them one check and they handle things with your creditors. It can sound like a huge relief to somone overwhelmed with debt but it shows up on your credit report when you use these services. It is nearly as bad as a bankruptcy and will kill your credit rating. They should only be used as a last resort.

-Dylan