Debt consolidation is usually a scam. Unless the company is a not for profit, consider it a scam and forget about it. Unless she is going to work or you are willing to pay off her debt, I don’t see how she intends to make this debt go away without filing a bankruptcy.

Debt consolidation has recently become an ambiguous and confusing term and can refer to several things. It usually refers to either of these:

1) Debt consolidation loans, where you consolidate all your credit card debt into one loan. You have to be very careful with this method…once your credit cards are paid off by the loan it’s simply too tempting to start using all that available credit again, and you soon end up with twice as much debt as when you started. If you do this, cut up your cards after they are paid off to avoid this temptation. If you have bad credit this won’t be an option.

2) Debt settlement…This is a risky tactic where you pay a monthly fee to a debt consolidator….this entire fee goes towards building a settlement account and to the consolidator’s fees. Your credit card companies will deliberately not be paid so that all the accounts will default/charge-off so that they can attempt settlements at around 50%. If you are current on your accounts, this process will ruin your credit rating for sure. Debt settlement is like a roll off the dice with your finances…you can never predict how your creditors will respond to the deliberate defaulting of your accounts…they might settle at 50%…or they might serve you a summons, take you to court…and if they win, you could be looking at wage garnishment.

I think she should abandon the idea of being a stay at home mom and get at least a part time job and pay off the debt. $20k is not that much debt, and if she files Ch 7, it will mess up her ability to get credit for at least 10 years. If it turns out your relationship doesn’t work out, she won’t be able to get an apartment, car, or anything involving credit on her own. And, if you marry, you won’t be able to use her name on any joint loan.

So, all around, it is a bad idea to use Ch 7 when this is an amount that can be taken care of over time. Just put the cards away, stop using them for anything, and pay them down steadily. Even if she only gets a job where she takes home $250 a week, she can pay this down in under two years.

If you decide to go with debt consolidation – be careful if you see the word negotiation.
They will tell you to ignore your bills in hopes that the companies will get nervous and settle.
If not, you will still end up in court – even though you paid them money.

Always google the name of the company you are thinking of doing business with followed by the words complaints, rip-off, or scam.

Most communities have consumer credit councelling services that are offered for free or at a fee of about 25 / month.
They tell you step by step how to negotiate with the companies yourself.
If not, get a book at the bookstore called credit repair for dummies.
They tell you how to do it yourself.
Be super careful with consolidation companies.
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