The Truth Behind Debt Consolidation Programs

With the economy tanking and consumer debt increasing to an all time high, companies are springing up all over that promise all sorts of ways to reduce your debt. However, many of these debt consolidation programs cause more problems than they solve.

There are a few very viable ways to reduce your debt and still pay off the amounts you owe. These methods revolve around lowering your interest payments while keeping your principle balance the same. In other words, you aren't trying to find a way to reduce the amount you actually owe a company. You are simply trying to get them to agree to reduce the fees they charge in order to make it profitable for them to have loaned you that money. (Credit cards, auto loans, mortgages - they are all the same.)

These debt consolidation methods should be tried first. Having your interest rates reduced will never affect your credit adversely! All the other methods will.

The companies that promise to help you consolidate your loans may not be doing you the favor you think. Even though they promise to contact all your creditors to arrange better deals and payment plans, many don't even do that! They charge you a fee, collect your fee, and do nothing for you. But, to make it seem like they did earn their money, they will send you an entire list of these alleged deals they made, new payment amounts, and phony names with whom they allegedly made these deals.

If you do choose to work with a company that promises to renegotiate your payment terms, be certain you understand exactly what you're committing to. What is it that they promise to do? How long will it take? Can you have final approval on any deal they are working on? In other words, are you giving them permission to act on your behalf and have final say in what happens? Not good!

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, they don't pay anything for you. By the time the collection agencies are beating down your door, this debt consolidation company has disappeared with your money. Before deciding on paying someone to work on your behalf, try negotiating with each of your lenders on your own. Companies can't do much better than you can! There is no reason a creditor is going to choose to work a deal with a third party company on your behalf.