Before getting into the details of various debt consolidation services, it’s best to understand what the possible benefits are from consolidating debt. First, there is interest rate reduction. Most companies have clauses in their contracts which automatically increase your interest rate to the highest rate allowable by law once you’ve fallen late on a payment. It can seem virtually impossible to pay off the debts once the interest rates are that high. Debt consolidation can get those interest rates back down to reasonable and affordable levels. That means you’ll eliminate your debt much faster.
Another benefit is having a plan. With a debt repayment plan, you’ll be able to see how the numbers will work. You’ll also know when you can expect to be out of debt. Many times debt is consolidated into a single monthly payment making it much easier for you to keep track of how much you owe. You may even receive detailed reports showing you the progress of your plan. That keeps it simple and easy for you. You merely need to make the payment and review your progress. Having a plan can be a very big time saving benefit.
An improved credit rating can also come much sooner with debt consolidation services. It’s true that late payments, charge-offs, and other negative items will be shown on your credit report for a maximum of up to seven years. However, more weight is always given to your most recent activity when it comes to your credit score. So, a series of timely payments can begin improving your score month after month. Additionally, many companies will negotiate on your behalf to get creditors to eliminate or at least reduce the impact of the negative items on your credit report.
Finally, credit collectors can be unbearable when it comes to phone calls. Sure, you have the ability and right to force them to stop calling, but that can take a lot of work on your part. Debt consolidation companies receive a power of attorney when you sign up with them. That means creditors and collection agencies cannot call you anymore unless they face severe consequences including fines, penalties, and even law suits. So, you can definitely expect to regain control of your phone number again.
Debt Consolidation Services Available
If you’re not familiar with the services offered, here are five common services and an explanation of what to expect the companies to do for you.
Interest Rate Arbitration
This is the process where the third party company will call and negotiate with your creditors for a lower interest rate. All of your debts are consolidated into one monthly payment which the company distributes on your behalf. You end up paying a lower amount each month, and you save time by not having to make each payment individually. It’s also much easier for a company to negotiate for you than doing it on your own.
Debt Management
Debt management starts with examining the numbers and creating a budget. It may seem overwhelming to do this on your own. That’s why it’s good to get help when crunching the numbers. An added benefit is that the company can often negotiate to have excessive late fees waived. Late fees combined with higher interest rates often result in a huge snowball effect. This service puts a stop to it, and gets you back to making a reasonable monthly payment on a plan.
Debt Negotiation and Settlement
If you’re considering bankruptcy as an option, then think about this step as the one option left before filing bankruptcy. A settlement company or law office works to get creditors to reduce the amount you owe. They can often influence them to lower the amount owed due to the fact that you couldn’t afford the payment otherwise. You may be surprised to find that creditors will accept as much as a 40-60% reduction on the principal amount owed. That’s because they face the unsettling reality that they’d get nothing should you file for bankruptcy.
Debt Consolidation Services Scams
This section serves as a word of caution against some things to look out for in your search for a company providing debt consolidation services. You should not have to pay any upfront fees prior to receiving services. More importantly, be on the look out for companies who bill themselves as consolidators offering services and later turn out to be selling products.
A good example of the type of scam to watch out for is when you see an ad offering an initial credit analysis for free but don’t deliver. You may answer an ad either by phone or email, and later receive a follow up. However, when the follow up comes, there is no mention of the free analysis. Instead, you’re offered a report, program, or some other informational product which you first must pay for. These type of scams normally have long wait periods before you can receive your reports and ask you to provide very detailed and sensitive financial information up front. So, be careful of these types of scams when seeking out debt consolidation services.
