You ask if you can consolidate your debt payments. The answer is yes, you have three options to consolidate accounts in collections, but not exactly the way you proposed in your question.
Your three debt consolidations options are:
- Credit counseling paired with a debt management plan
- Debt settlement
- Debt consolidation loan
Let's look at each option briefly.
Use Credit Counseling to Consolidate Your Accounts
Credit counseling consolidates your accounts in a three-step process. In step one, you meet with a credit counselor who goes over your household budget with a fine-tooth comb. Your counselor will recommend you set priorities on your spending, and find ways to cut your monthly spending. The counselor comes up with a payment for your enrolled accounts, which is usually 3% of your total balances. In this step, you need to determine if you can afford this payment every month for 5 years.
In step two, your credit counselor contacts each of your enrolled creditors and asks for a break on their interest rate, which is called the concession rate. The credit counselor creates a debt management plan (DMP) as each creditor agrees to a concession rate and monthly payment amount.
In step three, you make a monthly payment to the credit counselor, which slices up your payment and pays each creditor the agreed-up amount.
Because you make one payment to the credit counselor, which is them paid to your enrolled creditors, credit counseling is considered a form of debt consolidation.
Debt Settlement Can Consolidate Your Accounts
Debt settlement consolidates your accounts in an aggressive two-step process. In a credit counseling DMP, you repay 100% of your balance due. By contrast, in a debt settlement plan, the debt settlement company you hire negotiates lump-sum settlements to each of your enrolled debts. Debt settlement results in a faster time to debt freedom than a credit counseling DMP, and at a lower cost.
In your first step, you hire a debt settlement company that discusses your household budget and how much you have available each month to devote to a debt settlement program. The debt settlement company reviews each account you wish to enroll, and gives you an expected range of time it will take to settle your accounts. You choose to stop making your payments to your enrolled creditors, and instead make monthly deposits into a special bank account.
In step two, the debt settlement company starts negotiating deals with each enrolled creditor to settle the account. Typical settlements range from 40 to 60 cents on the dollar, though some creditors accept less for a quick settlement, and others demand larger settlement amounts.
The average debt settlement plan costs less and takes less time than the average credit counseling DMP, but has a harsher impact on your credit score. If you’ve already missed payments on your accounts, then your credit score has already suffered to the point that additional harm is not significant.
Consolidate Your Accounts With a Consolidation Loan
You may think of a consolidation loan to handle your debt problem. The most common consolidation loan is a cash-out refinance. A cash-out refinance is available if you own a home with equity. You refinance your home loan, pull equity out of your home, and use the cash to pay-off your debts.
A cash-out refinance can cut your monthly debt payments, which is great if you're house-rich but cash-poor.
A cash-out refinance has downsides. Your monthly payments may be less, but your lifetime interest costs are higher because you stretched your debt payments over the life of the mortgage. This strategy puts you at risk of foreclosure if you cannot pay your higher house payment.
If you do not have equity in your home and have a high credit score, you may be able to qualify for a debt consolidation loan. Check with your local banks, credit unions, and Wells Fargo for a debt consolidation loan.
Your Question About Account Consolidation
You ask if it’s possible for a debt collector to buy all of your collection accounts, and then make one payment to the collector to pay-off your debts. What you suggest is possible in theory, but it is unlikely to happen in practice.
Creditors sell many collection accounts to debt brokers in big block. Brokers then slice and dice the collection accounts into smaller numbers and then sell them to collection agents. The debt collection business today is dominated by a half-dozen large companies employing hundreds of collectors, and thousands of mom-and-pop collection agencies run by entrepreneurs. It is possible two of your accounts may wind-up at the same agency, but it is more likely your collection accounts will be scattered like leaves on a gusty fall day.
One other option to consider is bankruptcy. Read the Bills.com bankruptcy advice page to learn more, and if your debt qualifies for bankruptcy.
Visit our debt consolidation and bill consolidation page to read a different perspective on how to view your account consolidation options.
I hope this information helps you Find. Learn & Save.