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Debt Consolidation Services: Do They Produce Results?

Jul 24, 2008
The best way to deal with debt is to pay it all off on your own. This isn't always possible, however, due to constantly changing circumstances that may at times not even allow you to pay the minimum payment on monthly bills.

Debt consolidation is a solution sought out by many debtors who are in too deep. This can be achieved by transferring all debt to a low-interest credit card, or by taking out a home equity loan. There are also debt consolidation or credit counseling services that consumers can utilize.

How do these services work?

Debt consolidation services work together with your creditors to help make your debt more payable by canceling fees that have been charged to your account because of late payments or charging over your credit limit. These agencies can also get credit card companies to lower your interest rates. If you decide to use a debt consolidation service, you will pay them directly and then they forward your payments to the creditors you owe.

Pros

If you're unable to negotiate lower rates and payments with creditors on your own, a credit counselor can usually do it for you. This will save you money and help you get your debt paid off more quickly. The credit counselor can also help you write a budget to help you stick to the payment plan while still being able to afford all of your other expenses.

The cons

Despite all efforts from credit counseling agencies, some creditors simply refuse to make the changes necessary to bring your monthly payments down to an affordable level, especially if you owe a lot of money. If this happens in your case, you will have to try to find another way to pay off your debt or, if the circumstances demand it, file for bankruptcy.

Credit counseling agencies do not work for free; you will need to pay them a fee for the assistance they offer. They have to be able to pay their employees somehow, so they will either charge your debtors a percentage of your payments or they will add their fee to your monthly payments.

Using a credit counseling service to eliminate your debt does appear on your credit report, but will not necessarily reflect badly on your credit. Some creditors view Chapter 13 bankruptcy and credit counseling programs to be basically the same thing. While you are eliminating debt by means of such a program, you will not normally be extended any additional lines of credit.

And finally, it is imperative to check out any credit counseling agency that you are considering. Just like any other business, there are some that are not trustworthy. The Better Business Bureau is a good source of information on credit counseling agencies.

It is true that credit counseling can be one effective way to get out from under debt, but there are pros and cons to be weighed out. Before you rush into using an outside source for help, why not first try to negotiate an arrangement to rid yourself of debt directly between you and the credit card companies you owe?
About the Author
Are you looking for reliable information about debt consolidators? Visit http://www.debtopedia.com for helpful information about consolidating credit debt and other debt reduction information.
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