Problems

If you have seen advertising about debt consolidation companies, you might be under the mistaken notion that debt counseling agencies can clean up your financial problems with little pain. Can they really consolidate all your debts and give you a favorable interest rate as low as 0%? Sometimes, yes. However this is seldom the case, and many unsuspecting customers have found themselves victims of unscrupulous consolidation companies.

If you have a mountain of debt, it is very appealing to do a consolidation loan to become ‘debt free.’ Unfortunately many people are so desperate to do this that they do look closely enough at their consolidation agreement.

Though certainly not always so, the interest rate you pay for consolidating your debts can actually be higher than you would be paying your creditors separately. On top of that, most companies also charge a separate fee for their services. In that scenario, your debts are being paid off a lot more slowly than you may realize.

What most people are unaware of is that consolidation companies don’t do anything different from what you could do yourself if you know the right information and are inclined to do the leg work. For example, you have every right to speak with your creditors and come to a compromise with them.

If you take the time to explain your situation to your creditors, they are usually willing to be flexible with you – as long as you demonstrate good faith in repaying. Most creditors prefer dealing directly with the debtor, anyway, since it cuts out the middleman.

Another thing you may not be know is that some consolidation companies make late payments to creditors. This adds costs for which the customer is responsible but likely is not aware; and this will only serve to extend the repayment period.

Using a balance transfer on your credit cards is also an additional option you may assume is more efficient and less expensive in paying off your debts. However the initial low interest rate on almost any new credit card does not last, and the customer who does not stay on top of payment records may in fact wind up paying back much more in the end.

Also, if you frequently switch cards, you could find that you are no longer accepted for new credit cards.

If you are still considering a consolidation of your debts, borrowing against the equity in your home is an option. It’s a very serious option, but an option nonetheless.

Such loans typically have a lower interest rate than consolidation companies offer so are worth consideration. If you have previously not experienced bad credit, weigh the possibility of obtaining a personal loan.

There are other options you can investigate if you need help in dealing with your debts. Debt counselors can assist without resorting to the use of a consolidation company. They can talk you through options available to you and provide insightful guidance.

The bottom line is that if you take the time to gain all available information you can about your debts and speak with your creditors forthrightly, you can almost always come to a mutually beneficial solution.