Advertising a lifeline for consumers burdened with high credit debt, popular consolidation services seem at first glance to be an easy solution to the problem.
Unfortunately, for many consumers who trust consolidation services without reading the fine print, this leads to a worsening of the financial situation instead of the lifeline they need.
Debt relief does not appear overnight. Often debt is the consequence of irresponsible purchasing decisions, impulse buys and over-shopping. It may also be the result of a medical emergency, job loss or other temporary financial crisis in your life.
Some Myths of Popular Debt Consolidation Services
The ad in the mail may list all the benefits of consolidating your debt into one new account with a 0% interest introductory rate.
If you put pen to paper you may realize that by combining four credit cards with high interest balances you could pay you debt faster with payments at 0% interest.
It’s easy to get very excited at the possibility and ignore the fact that any remaining debt at the end of the introductory period will carry a significant interest rate on the entire balance.
Debt Consolidation Services
Organizations are available to help you lower your payments and consolidate you debt. Many of these businesses make big promises. They will negotiate with your credit card lenders on your behalf to reduce your interest rates and monthly payments.
For a minimal fee, they will pay your bills for you each month. You need send only one payment to the consolidation firm (usually as a direct debit from your checking account) and won’t have to worry about all those nasty credit card bills.
The credit consolidation services are not doing anything that you cannot do for yourself. You can negotiate with your lender for a lower interest rates or an extended repayment schedule.
You can pay off the highest interest credit cards first with extra monthly payment. You can reduce the total interest you pay on your current debt by thousands if you increase the amount you pay each month by only $20-30.
You pay the debt consolidation service a fee of about 10% and that amount is usually part of the monthly payment you send them. In addition, the services may also be paid by your lenders who are happy to know the debt will be paid and are willing to send back a percentage to the consolidation service.
Risks of Using Popular Consolidation Services
There are credit debt consolidation services that are trustworthy, charge low fees and were created to help consumers.
The consolidation market is so popular that there are also many companies that scam consumers who trust their services.
Some consolidation services have made late payments or have failed to make payments on the consumer’s credit card bills. You would not know this problem existed until your lending institution contacted you about your delinquent account.
Non-Profit Debt Consolidation Services
There are reputable companies that offer debt consolidation on a non-profit basis. You can find such services by starting with the Better Business Bureau in your state or at the National Foundation for Credit Counseling website at www.nfcc.org.
Only you know how disciplined you are when it comes to paying off debt. If you are unsure of your ability to discipline yourself to pay off your credit debt, the risk of using popular debt consolidation services can be avoided by researching services before committing to one.
If you are attracted by the promises of popular consolidation services be cautious when choosing a company to work with. Search online for recommendations and complaints and check your local business bureau and the NFCC for certified and trusted debt consolidation.