Consolidation Companies And Their Promises

Credit consolidation companies have long promised consumers a magical solution to massive debt. It all sounds good, but there is no magic solution to getting out of debt. And consolidation companies are one of the most slippery slopes of all on the road to debt relief.

The idea that rolling debt into one neat, tidy, little package is enticing. Taking a number of monthly payments, and only owing one low one seems like a type of financial nirvana. But, it simply doesn't work that easily.

Consolidation companies do roll everything into one package, and often get interest rates lowered. Then comes the consolidation loan required to pay off all those debts and get that one monthly payment. Chances are that the consumer has already missed a few payments so the credit rating has a few dents in it. That means obtaining a loan is difficult, and it will usually be in the form of a second mortgage, home equity loan or the use of expensive assets as collateral. The interest rates may even be higher than the ones on the credit card debts. Plus, the consumer is trading unsecured loans for secured ones. The low monthly payment can take on years of uncertainty.

Then, there is the matter of fees. Consolidation companies don't work for free even if they claim to be non-profit organizations. Fees range from about 10% of the monthly payments, and they can have add-ons for other services. They even get a cut from the creditor, who is only too happy to kick a little back. They're getting something on their loan which they wouldn't if the consumer declared bankruptcy. There's also the little matter of the consolidation companies handling the monthly payments. They've been known to be late with them, and as if the consumer's credit rating wasn't already bad enough, it could get worse.

Consolidation companies aren't all bad, but there's a reasonable amount that the consumer should consider prior to signing on with one too. If so behind in payments that loans are impossible and the idea of being more in debt for a number of years is unappealing, debt management or debt settlement can also be solutions. They work in completely different ways, and do not require a loan for starters. They each have certain qualifications that must be met, but any consumer considering debt consolidation should research what they might offer for their circumstance.

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