Should you use a debt consolidation company?
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With the economic period we are in; it seems that everyday you are seeing more and more advertisements for debt consolidation, Whether on tv or your favorite websites. That’s great if you’re in debt but you may be wondering what debt consolidation is and how it works.
To start with I must give you a few words of counsel. If you make your mind up to use a debt consolidation company you will need to do some research. Not all the companies out there have your best interest at heart. At the end of this article I will give you the information you need to avoid the scams.
So what is debt consolidation? In its simplest form debt consolidation is basically taking all of your debts and combining them into one monthly payment. How this is achieved varies from company to company.
The most common way of doing this is by having you take out a home equity loan and pay all of your debts off from that – plus their often not so moderate fee. This is not necessarily bad; but with the way mortgages and credit are going today it is getting harder to get these loans,specially if you are already in debt and your credit may not be at its best.
Another method that many companies use is to negotiate with your creditors to settle your debt at a lower rate (usually by manipulating the interest rate).
Usually they make money in two ways in these cases. Firstly from you, and secondly from the companies they negotiate with, because most of the larger debt consolidation companies have contracts with the largest creditors to earn a commission on the debts they help collect. Sounds like a collection agency that you are paying to collect from you!
Not all debt consolidators are out to rip you off. Many of the companies that you can get in touch with through your local consumer associations will have your best interests at heart. Additionally many of these organizations are either non-profit or not for profit.
You can go the route of doing it yourself. It is a little tedious but not overly difficult to accomplish. If you are really strapped for cash, this may be the best way for you to go, as it will not cost you any additional money, other than what you can negotiate for yourself.
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July 20th, 2009 14:03
Good point! Thanks!