Is Debt Consolidation right for me?
What do debt consolidation companies do?
They work for you by:
1. Review your situation and prepare a breakdown of your income vs. expenses
2. Negotiate a lower, affordable monthly payment for you to pay your creditors including collection agencies
3. Negotiate lower interest rates
4. Negotiate to eliminate or reduce late fees, over the limit charges and penalties
5. Consolidate all of your debts to one monthly bill (this payment is distributed to your creditors)
6. Communicating with your creditors so you don’t have to (stop harassing phone calls)
7. Help you get out of debt in 2 – 6 years vs. 20 – 40+ years
8. By paying your creditors this will help to get your credit scores back on track
How much does it cost?
Typically anywhere from $0 - $50 a month. Some non – profit debt consolidation companies may work off of donations.
Can I be scammed with debt consolidation?
Anything is possible and there are definite precautions you should take in choosing a debt consolidation company.
1. Your personal details should be guarded and you should not give personally identifying information over the phone or online. Look for a disclosure in their paperwork that states they will hold your information in complete confidence and will not sell or share your information with other 3rd party vendors.
2. Watch out for companies claiming their programs are free. Many times they hide their fees in the monthly payment. Read your client agreements!
Does Debt Consolidation make sense to do?
Maybe, maybe not.
You will most likely have a smaller payment per month and your creditors will be getting paid however many debt consolidation plans will cost you more money over time, because, in order for the debt consolidation company to make money they typically are going to stretch out your payments over a longer time period in order to collect their revenue. If your intention is simply to get a lower monthly payment and you don’t care how long or how much it will ultimately cost to pay off your debt than debt consolidation may not be a bad approach to getting you debt free.
Is this like Debt Settlement?
No. Typically you will not see any principal reduction. Debt consolidation is designed as a way to pay off the total amount that you owe more quickly with less interest.