A report states that there are 900 million people who seek the help of credit consolidation agencies but only one in a million successfully complete the debt management program. There are many reasons for the limited success of the credit consolidation programs. When you signup for credit consolidation you get the benefit of paying your debts in smaller installments some times with lowered interests and your late fee waived off. This will make your life with heavy debts manageable.
Though you enjoy the above benefits of credit consolidation, there are other hidden disadvantages. One of the major disadvantages is that you end up paying back your debts for a longer period of time because of the size of the installments but if you calculate the total value you pay, in spite of the reduced interest rates it will certainly be more than the value that you would have paid otherwise. Other disadvantage is that sometimes the credit consolidation agencies charge an enormous fee to render their service.
If you dont find the right agency, you will be lured into empty promises that give you hope of having things changed over night. If you come across such agencies the first thing you do is to look for an alternative agency that will help you meet the reality and handle it efficiently.
Some credit consolidation agencies will talk you to signup for debt management programs and offer upfront loans to pay off the debt. But this will give you only a temporary relief and often you end up with higher interest rates on these loans.
However, not all credit consolidation agencies are bad. There are good agencies that help people get out of their debts successfully. They will help you out in budgeting your money, they will help you out in understanding your spending pattern and gain control over it. They will counsel you on how to keep to your debt management plan.
Look for agencies that will allow you to be flexible with the payback pattern, for instance if you find yourself having some extra bit of money on a particular month then you should be able to pay towards your debt. If they are out for making money out of you they will not allow you to make additional payment and you will be forced to settle your debt over a longer period of time. If you wish you should be able to pay more towards your monthly payment to settle your debt faster.
What is very important while learning to manage your debt is not to incur any huge expense. This will only add on to your burden.
Summary:
Seeking for credit consolidation has many benefits as it makes your debts manageable. At the same time there are a few disadvantages such as extended life of loan and hence higher total value of the loan to be paid. Rigid payment plans sometimes does not allow you to finish off your loan faster. Credit consolidation agencies are sometimes more keen in signing you up for their credit management program than in getting you out of debt. So they tend to collect higher monthly fee for the service they render.
Watch the video related to credit consolidation
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Help answer the question about credit consolidation
What would be the best credit consolidation service to go to?I am in debt and am finding it harder and harder to pay the bills and am wondering which reputable credit consolidation/counseling service would help me out.
Haven't gone that route myself, but there are other options. Try prosper, or any other peer-to-peer lending site if you can't get a consolidation loan. Also, see if you qualify for membership at any local credit union. A lot of them are open to all individuals in a particular county for instance. They are a lot more free to give discretionary loans in a tough credit environment.
You are right not to want to borrow from your 401k, as ultimately, you will pay it off with taxed dollars, meaning you will have paid taxes twice on part of your nest egg, when you are taxed at withdrawal. As a last resort, however, the interest rate may be lower than anything else you can find, and you are usually paying it to yourself, which should not hurt your 401k balance too badly.
Once you are repaid, try not to fall in the same credit trap
I used Debt Counseling Corporation. They have been great–I spoke with several companies before I went with them. I researched with the BBB, the Banking Departments, the Attorney General–and word of mouth. I was recommended to them and now I recommend them. They helped me with a budget and gave me a lot of really helpful information. Not only did they lower my interest, lower my payment and consolidate the 11 accounts I had, they followed up with me–I thought that was important. That follow up gave me the information and motivation to keep going and keep making the payments the way I was supposed to.
Here is thier website–I would recommend checking them out
http://www.debtcounselingcorp.org