Is Debt Consolidation a Smart Choice?
Do creditors regularly call your home because you're late on
payments? Do you feel harassed by debt collectors? Are late
payments ruining your credit score? If you find yourself in any of
these situations, you're probably looking for a way to stop the
financial bleeding. One way to do this is to hire a debt
consolidation company. There are positive and negative attributes
of these companies. Let's examine both.
Debt consolidation companies act as the middle man between you
and your creditors. If you have three different credit cards, you
make three different payments each month. A debt consolidator will
collect one payment from you and then disburse it to your various
creditors. The first benefit of these agencies is that they
simplify your monthly bill paying process. You can make one payment
instead of three.
The second advantage in using debt consolidation is that
occasionally the agency can negotiate a lower payoff amount. If you
owe $2500, they may be able to talk the credit card company into
accepting $2000 as full and final payment. Credit card companies
are willing to negotiate because your use of a debt consolidation
company shows a good faith effort to pay your bill. If you default
completely or declare bankruptcy, they're left with no payment at
all. The intervention of a consolidation company tells them you
intend to pay them back.
One negative aspect of using a debt consolidation company is
that they often insist on automatic withdrawal from a checking
account. If you don't have a checking account or if you are unsure
of your ability to have the amount of your monthly payment in the
bank on the same day every month, this could be problematic for
you. If you're unable to cover the amount of the automatic
withdrawal, you'll end up with bank fees. This puts a further
strain on your financial situation.
Additionally, debt consolidation services will show up on your
credit report. If you try to buy a house or a car on credit,
potential lenders will see that you were unable to manage your
finances in the past and had to hire a debt consolidation agency.
You will most likely still be able to get a loan, but you will pay
a higher interest rate.
Debt consolidation can be a useful tool for simplifying the
process of credit repayment. It may be the right solution for
you!