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Pros And Cons Of Debt Consolidation Programs

Enlisting the services of a debt consolidation company can be beneficial for consumers who aren't able to make financial ends meet. Debt consolidation programs can help combine many different bills into a single monthly payment with the goal of reducing long-term debt and getting the consumer back on track financially. Before determining if a debt consolidation program is right for you, analyze the pros and cons and keep these in mind when making your decision.

What is Debt Consolidation?

Companies that offer debt consolidation services contact your lenders were you have outstanding balances and negotiate terms that benefit both parties. Lenders will normally offer lower interest rates and wave penalties and interest if a program is established which guarantees continued timely payment on outstanding debts. Consumers benefit from making a single monthly payment from which all creditors are paid. This will normally result in lower payments than paying individual bills. Many debt consolidation programs manage which creditors get paid, how much and at what interest rate which is instrumental in reducing excessive debt and becoming financially independent again.

Debt Consolidation Pros

The primary benefit of using a debt consolidation program is eliminating the stress involved when dealing with multiple lenders looking to collect on outstanding debt. The juggling act of paying bills piecemeal while interest and fees continue to accumulate tends to disappear when terms are renegotiated using a debt consolidation service. Consumers subsequently only have to write one check a month to the debt consolidation company but the amount is often less due to a lower interest rate and the waiving of penalties and fees.

Debt Consolidation Cons

Debt consolidation companies did not offer their services free of charge. A monthly handling fee is added to the amount paid each month to the consolidation company. This amount will vary from company to company so it is best to shop around and compare rates to save additional money. If you participate in a debt consolidation program you will be responsible for making your monthly payment so inquire about possible penalties and fees as part of the process. Debt consolidation companies do not necessarily do anything a consumer is unable to do themselves. Many consumers save money by contacting lenders directly and negotiating similar deals for lower interest rates, waiving penalties and fees and implementing a payment plan.

Possible Considerations

Debt consolidation programs are merely an simplified solution for paying down excessive debt in a timely manner. You will still be responsible as the borrower to make monthly payments regardless of whether it is to one organization or many. Debt consolidation, at least initially, also does not rectify issues with your credit report. Many accounts which have gone past due will still be reported as delinquent even if monthly payments are being made through a debt consolidation program. Try to join a program which is successful at convincing creditors to change your account standing to help improve your credit score.

A Warning for Consumers

When individuals are desperate to get out from under excessive amounts of debt and stop phone calls from collection agencies, they can become unwitting victims of debt consolidation scams. Visit the Federal Trade Commission website when selecting a debt consolidation or credit counseling program. Also, conduct additional research online to determine if the company you're likely to work with is being discussed on scam and fraud watch websites. Look up the company on the Better Business Bureau to see if it is both registered and what it is currently rated.