Debt Consolidation: Friend or Foe for Your Credit?
We’ve all heard the term debt consolidation tossed around — it sounds neat, tidy, and like a perfect fix for financial struggles. But here at Debts in a Row, LLC, we know that not every “solution” is as simple or harmless as it seems.
Before you, your client, or even a friend jumps into a debt consolidation program, let’s break down how it actually works, when it can be helpful, and why it can also create long-lasting credit headaches.
So, what exactly is debt consolidation?
In the financial world, “debt consolidation” typically means rolling multiple debts into one single monthly payment, often at a lower amount. In most debt relief programs, the company you hire takes over the process of negotiating with your creditors, aiming to settle those accounts for less than the total you owe.
This is not the same as getting a personal loan to consolidate debt — that’s a separate approach where you handle the payments yourself. Debt consolidation companies act as the middleman, but the way they operate may surprise you.
How it usually works (and why it’s risky)
In many debt consolidation programs, the first step is alarming: you’re told to stop making payments to your creditors. The company sets up a separate account where you deposit funds monthly, and once enough has built up, they begin negotiating settlements.
The problem?
During that waiting period, those debts aren’t being paid — which means late payments, charge-offs, and collections start piling up on your credit report. This damage can stay with you for years.
And there’s more:
Forgiven debt can be reported as taxable income, leading to a surprise 1099-C at the end of the year.
If the debts were already charged-off, you might be paying hefty fees for something you could negotiate on your own — for free.
When it can help
Debt consolidation isn’t always bad. In certain situations, it can:
Lower the total monthly payment, giving short-term breathing room.
Potentially settle debts for less than you owe.
Offer professional assistance with large, old accounts that are already in collections.
But even in these cases, the benefits must be weighed against the possible long-term harm to credit scores — especially for anyone hoping to buy a home in the future.
When it can hurt
The harsh truth is that many debt consolidation companies operate on promises that sound too good to be true — because they often are. Here’s why:
The payment pause tactic can tank your credit.
Sales language like “approved” or “relief program” can mask the risks.
Many clients find themselves worse off, with credit scores deeply damaged and debt still lingering.
If homeownership is the goal, this path can actually push it further out of reach.
A better approach
At Debts in a Row, LLC, we believe in fixing credit and reducing debt without creating new problems. Our process focuses on:
Reviewing each client’s full credit picture.
Identifying the most effective and legal ways to address negative accounts.
Offering personalized action plans to lower debt while building healthy credit habits.
And the best part for our Realtor and lender partners? You can follow along with your client’s progress in your own Referral Partner Portal — so you’ll know exactly when they’re ready to reapply for financing.
Bottom line
Debt consolidation can look like a quick fix, but without understanding the full picture, it can cause lasting damage. Instead of sending clients down that risky road, send them to Debts in a Row, LLC. We’ll help them make smart choices that keep their homeownership dreams within reach — and keep you in the loop every step of the way.
📩 debtsinarowllc@gmail.com
📞 270-935-1675
🌐 debtsinarowllc.com
