Many consumers are finding themselves in debt as never before. As jobs are lost and the economy tumbles further into trouble every day, many people are forced into considering some sort of debt consolidation program. If this sounds like you, be careful of the choices you make and understand the ones available.
Before hiring one of these firms, it’s important to understand that there are two major ways to reduce your debt, and you don’t need to pay anyone to help you do it.
There are two ways to reduce your debt: one, by reducing your interest rates and two, by reducing your principle amount. Find a way to reduce your interest is always the best approach. It won’t affect your FICO score or hurt your credit rating in any way. It could even help if the reduction helps to free up more money each month with which you can begin to pay all your bills on time.
Some companies promise they will contact each of your creditors and negotiate “better deals”. They either try to get them to reduce your principle, or the interest. This type of process can cause a few problems for the borrower. First, you have no guarantee the company contacted anyone on your behalf. Second, you might be told you have a new payment structure when you don’t. You could start paying a lower amount because you were told to, but your creditor has no idea why you are now paying less and are behind on your payments.
These same companies typically charge some hefty fees for these services, and they want their money up front. Others ask for monthly payments because they say they continue to work on your behalf. Usually they do nothing once they get your money.
Be very wary of any company that insists you send them money each month so that they in turn can make your payments for you. This is a common scam. They explain to you this is for your benefit since you have trouble paying your bills.
In reality, you don’t need anyone to act on your behalf. These companies don’t have any better success with creditors than consumers. Why would they? Call your creditors, see what they can do for your interest payments, and go from there. Having your principle reduced doesn’t help anyone in the long run.
Looking to find out what your debt consolidation options are? Get the ultimate inside skinny now with our complete debt consolidation guide.
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