Debt Consolidation Service

Many consumers utilize a debt consolidation service when they find that their debts have become unmanageable. Using a debt consolidation service, however, is not a magical solution to becoming debt free.

Not An Easy Out

Debt consolidation services take all the unsecured debt a consumer has and then rolls it into one smaller monthly payment. The administrators of debt consolidation programs negotiate with lenders to lower interest rates until the debt is paid off.

Enrolling into a debt consolidation program is not a decision which should be made hastily. A debt consolidation service is not a handy bill-paying service, but is instead designed to assist consumers who have debt that has spiraled out of control.

Bankruptcy Alternative

Consumers who have been considering bankruptcy may want to consider debt consolidation instead. Instead of discharging all the consumer's bills, the debt is renegotiated and eventually paid off. The advantage to the consumer is that the consolidation service takes care of the negotiation and transforms all the debt into one easy payment. All the consumer needs to do is consistently pay the monthly payment to the consolidation company.

Debt Consolidation Service Differences

Before enrolling in any debt consolidation service program, consumers should check with the Better Business Bureau to make sure there are no complaints filed about the program they are enrolling into. Some debt consolidation services are better than others. One company may make payments on time and offer continued consumer credit counseling, while another company might take the consumer's money but fail to make the payments on time - leaving the consumer in a bigger mess than what he or she started with.

Specific Terms

When consumers are enrolled into a debt consolidation program, they will probably be asked to sign an agreement which states that they will not seek out additional credit and will not use the credit cards they currently have. This means that while consumers are enrolled in a consolidation program they may not be able to get a new car loan, apply for a department store credit card, or whip out their credit card to pay for dinner. If consumers do not follow the terms of the debt consolidation service agreement, the company may cancel their enrollment in the program.

Credit Scores Suffer

When consumers are enrolled in a debt consolidation program, their credit report will list their status as making payments through a consolidation service. Even when consumers have withdrawn or completed the program, the accounts which were once paid through the service will reflect this for some time. Just how much does it affect consumers' chances for future credit? Some lenders, particularly mortgage lenders, regard debt consolidation service enrollment as being akin to bankruptcy. Consumers may need to wait a couple of years before they will be able to apply for a credit card or other account which does not have ridiculously high interest rates.

Do It Yourself

If you find that you are having trouble making your minimum monthly payments to your creditors, you can call them yourself and request that they grant you smaller payments temporarily while you get your financial act together. Some creditors will actually suspend your interest if you contact them and let them know about your situation. It is always preferable, however, to contact your creditors sooner as opposed to later; if you spent the last few months missing payments and avoiding phone calls from your creditors, they will probably be less receptive than if you call before a late payment.

If you are able to work out a debt negotiation program, be sure that you stick to it and don't let one payment show up late. If you don't pay as agreed, the creditors are not going to be nearly as forgiving as they once were. Although it is true that the debt will not be lumped into one convenient payment, the lower interest rates and renewed resolve may help you to get back on track.

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