Debt Consolidation Services Risks and Rewards
Debt Consolidation: Services vs. LoansDonít confuse debt consolidation services with loans. After all, if all you wanted was a loan, you could have just gone to a bank. Good services primarily provide counseling to help you in dealing with your debt. An objective outside look at your finances might be just what you need to make the solution to your problems clear as day.
But there are bad services are just trying to sell you a new loan to pay off your old loans. They donít have your best interest at heart.
How do you tell the good from the bad?
- Good: A service that is really providing a valuable service will start off by helping you plan how to restructure your finances.
- Bad: A service that is really just a loan program will usually try to push you towards a loan package (which might be labeled a repayment package rather than a loan).
- Good: A service thatís more oriented toward counseling will likely charge you directly for its services. As with any purchasing decision, make sure you know what you are getting in advance. If you already have a strong plan for getting out of debt on your own, you probably donít want to pay too much for counseling. For almost everyone else, the service fees will ultimately repay themselves in saved interest and fees to creditors.
- Bad: If a debt consolidation service requires you to miss one or more payments, the late payments will almost certainly appear on your credit report. This will hurt your credit rating. It is also likely a sign that the organization is trying to get a finderís fee from your creditors, rather than working to keep your credit rating clean.
- Possibly bad: Watch out if a debt consolidation service requires you to make payments through them rather than directly to your creditors. Your credit rating may be damaged if they are ever late in paying. Some fly-by-night debt consolidation services have even closed shop after taking clientsí money, without passing anything on to clientsí creditors.
- Neither good nor bad: Nonprofit status is not a government endorsement of a groupís activities or goals. It is essentially just a tax classification. Many nonprofits are actually just out to make their employee-owners money. Be as critical of any nonprofit as you would of a business.
Tips for Finding Good Debt Consolidation Services
- Shop around. There are lots of good debt consolidation services out there. But youíll only be able to tell the good from the bad if you compare different services.
- Call the Better Business Bureau and your stateís consumer protection agency to see if they have any information on the debt consolidation company you are considering.
- Walk away from any service that suggests a program for consolidating your debt before asking you detailed questions about your spending, expenses, earnings, and goals.
- Get any deal in writing, and make sure you understand everything you are asked to sign.