Choosing a Debt Consolidation Firm

There are thousands of debt consolidation firms or credit counseling services offering quick solutions to debt problems. Individuals with excessive debts are in a vulnerable position. Aside from a low credit rating, these persons are likely harassed by creditors and collection agencies on a daily basis. In order to stop the phone calls, many consider bankruptcy. On the other hand, debt consolidation firms offer a better alternative. Even though the majority of consolidation agencies are effective with helping people reduce and manage their unsecured debts, forethought is necessary when picking a firm.

There are undoubtedly more debt consolidation firms than people needing relief from debt. For this matter, firms and agencies will do anything to gain your business. This includes marketing idealistic promises.

Debt cannot be wiped out overnight. The majority of debt consolidation companies require a minimum debt amount of at least $4,000. Thus, it may take approximately 36 – 48 months to completely erase unsecured debt. With this said, beware of firms that offer quick or legal debt elimination. These companies are more than likely advertising a debt settlement. This option reduces liability, and consumers are only required to pay creditors half of what is owed. Although appealing, debt settlements have lasting consequences and may greatly decrease your credit rating.

What to Consider When Choosing a Debt Consolidation Firm?

1. Select a Non-Profit Firm

The primary goal of debt consolidation agencies should be to help their clients reduce debts and improve credit rating. Unfortunately, many firms are only concerned about one aspect – profit. Thus, clients are required to pay huge upfront fees and a monthly service fee. In return, the agency agrees to contact all creditors and negotiate an elimination of interest rates on unsecured debts.

In some instances, debt consolidation firms are unable to live up to their promises. For starters, your creditors are not obligated to offer a lower rate or eliminate interest payments. If creditors are reluctant to participate, using the debt consolidation firm is purposeless. Of course, dishonest firms rarely inform clients of a creditor's unwillingness to participate in the consolidation. Instead, they continue to collect monthly fees which range from $40 to $200.

Non-profit debt consolidation firms have little or no fees, and offer a realistic debt elimination plan. Before signing with a reputable firm, a credit counselor will assess each individual client's credit situation and create a repayment plan. Additionally, non-profit agencies offer the highest level of honesty. For example, if a client has acquired debt in the tens of thousands, bankruptcy may be a better solution.

2. Research the Debt Consolidation Firm

With the influx of debt consolidation and credit counseling agencies, picking the best company is difficult. To help narrow down your selection, contact a local Better Business Bureau (BBB), and inquire about complaints. If using an online consolidation company, consult an online rip off or fraud report. Furthermore, the majority of reputable debt consolidation and credit counseling firms are listed with the National Foundation for Credit Counseling. Choose a company from among this list.