Straight Facts About Debt Consolidation
by Sherry Holetzky
Debt consolidation may be a helpful tool for some people, but others will quickly become disappointed. In large part, it depends on the company you choose. Debt consolidation companies tend to make a lot of promises but keep few of them, starting with the promise that they are free.
These people are in business. They aren’t trying to help you out of the goodness of their hearts; they are in it to make a buck. Most collect a fee for each account you list with them. It’s a small fee, but if you have a number of accounts, it adds up. If you’re spending anywhere from $25.00 and up for this “free” service, you could be using that money to make payments on at least one of your debts.
While most people don’t mind the fees, because they enjoy the convenience of writing only one check and allowing someone else to deal with creditors and disperse payments, debt consolidation companies should make it clear that there are fees involved. They should be straightforward, especially those that charge a large one time set up fee, which is usually equal to one month’s payment. This amount is generally hundreds of dollars.
A one-time charge of hundreds of dollars plus all those monthly fees begins to look pretty expensive for a service that is described as free. Now, here’s the ingenious part. These companies are often registered as non-profit organizations, so they not only take your money for their so-called free services; they also avoid paying taxes on that money.
Again, debt consolidation may work well for some people, but you have the right to know that they may not be exactly what they claim to be.
Another promise is to keep your creditors at bay and end all those annoying phone calls and nasty letters. They imply that the harassment will stop immediately as soon as you sign up. Not so. It takes a while for them to get in touch with all of your creditors, and many will continue to call and try to collect money from you even after the arrangements have been made. They will intimidate you and claim that you still have to pay despite the contract with the debt consolidation company.
Be aware that collections personnel in most cases receive a commission for any money they can collect from you. That is why they are so persistent and intimidating. Do not let them bully you. You might think that you can simply refer them to the debt consolidation company, but don’t count on your “counselor” to take care of things for you. It doesn’t work like that.
After a few months, the calls and letters should stop. That is, unless your creditor sells your account to someone else. Then the real fun begins. If the new owner of your account decides not to fulfill the contract, you may find your interest rate rising even higher than it was with the original creditor. The new owner may demand larger monthly payments, as well as back payments.
Debt consolidation companies do not warn you about such things. So, if you intend to use one of these programs, be sure to ask a lot of questions. Debt consolidation can be helpful for some people, but it is definitely not a magical cure for debt problems, and it often brings another set of problems to the table.