photo by Andres Rueda
Debt Consolidation Companies and Credit Counseling Services seem to be all the rage lately. Many of the websites out there that offer financial advice seem to also have adds for these types of companies. I also see a lot of questions from people asking for advice about them.
Personally, I’m not a big fan of either one. Debt consolidation in any form is not a good idea whether it’s with one of these companies or simply through a home equity loan or other form of consolidating your debts. All you accomplish is creating one big loan. You’ve still got to get it paid off. It can create a tendency for you to go back to those credit cards again since they are now paid off. Also, it can ruin the momentum you can gain by paying off those smaller debts one by one. Now you’ve got one big loan that seems as though it will never get paid off.
The Debt Consolidation companies usually charge large fees for the service. Even worse, many of them are down right frauds who will take your money and not pay your bills and suddenly disappear leaving you holding the bag!
You can run into the same fraud situation when dealing with Debt Counselors. There are many low-life scum-bags out there preying upon people who are already down on their luck. There are some legitimate companies out there however. I still don’t recommend you use them. There are a couple of issues with this process. First of all, there is a fee associated. You need your money to go toward getting your debt paid off not to their pocketbooks. Debt counseling services primarily make your life easier. They negotiate lower interest payments for you and they allow you to make one payment to them so you don’t have to figure out for yourself how much to pay to who. Therein lies the problem. It is not in your best interest to make this situation easier. You need it to be painful. You need to make those phone calls to the creditors to negotiate those interest rates. You need to be figuring out how much to pay on each debt. You need to take responsibility and feel the pain so that you learn that you never want to be in this situation again.
The farther you are removed from the situation, the less likely you are to make the necessary changes that will keep you from making the same mistakes that lead you into debt in the first place. You need to fight this battle. The victory on the other side will be all the sweeter because of it.