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Working With Debt Consolidation Services |
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Sometimes people who have accumulated debts from a range of creditors, and feel "over their heads" in keeping track of their debts and paying their bills, will consider using debt consolidation services, usually through a credit counselor. Before you sign up with debt consolidation services, you should make sure that you will be comfortable with the service, and that the service you use will act in your financial best interests. Debt consolidation services provide a loan that pays off some or all your existing debt, and replaces it with a single loan with a single payment. The promise is to replace various high interest loans, such as credit card debt, with a single loan with a lower total monthly payment. A related type of service is debt management services, which does not provide a consolidation loan, but instead pays your various debts for you. If debt consolidation services negotiate reduced interest rates or balance reductions on your behalf, those negotiations will likely be reflected on your credit record. Thus, some (but not all) creditors may treat you as a higher risk when issuing future credit. However, the effect on your credit is ordinarily far less significant than a continuing pattern of late and missed payments. Also, if you forgo debt management and end up filing for bankruptcy, creditors will view you as a higher credit risk. It is not unusual for debt consolidation services to obtain a 10% commission or more on your new loan. It is possible that the consolidator will obtain a rebate from lenders when the new loan is applied to pay off those debts, for an even greater commission. The chance for significant, easy profits inspire unethical debt consolidation services to encourage people to obtain consolidation loans that aren't in their best interest. In many cases, those seeking debt consolidation services are exploring the option because they are already have difficulty making their payments. If so, the chances are that they will not qualify for a low interest rate. If they obtain a higher interest consolidation loan, any reduction in their monthly payments will likely be because the bulk of each payment is for interest, with little going to the principal balance of the loan. As a result, although their monthly payment is reduced, they will make very slow progress toward paying off the loan and will likely pay a lot more interest over the life of the loan. Negotiate with your creditors: Sometimes your creditors will offer debt consolidation services that will offer you a lower interest rate or will waive certain fees associated with your accounts, if you simply call up and ask. This is most often true of credit card companies. Debt Management: You may be better served by using debt consolidation services. With a debt management plan, you deposit an amount of money each month with a service, which pays your bills for you. Using A Traditional Lender: You may be better served using a traditional lender rather than debt consolidation services. Unsecured and Secured Loans: If your credit is relatively good and you are employed, you may be able to obtain an unsecured personal loan, which you can use to pay off some of your higher interest debt, such as your credit card debt. As many debt consolidation services will use your home as collateral, refinancing your home or obtaining a home equity loan, and using the proceeds to pay off your debts may well best serve you. Bankruptcy: There is a possibility that your best option is to declare bankruptcy. If all debt consolidation services will do is forestall an inevitable bankruptcy, consider whether you will be better served by proceeding directly to bankruptcy. There are some debt consolidation services that are sold through multi-level marketing schemes. Beware of these schemes and choose one of the best debt consolidation services to payoff all your previous debts. You should treat a multi-level program like any other option - see how it stacks up against your alternatives, then select the one that is in your financial best interest!!! |
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