Debt Consolidation Companies – How They Operate and Where To Find Reliable One
When looking for debt relief companies, the first thing that will come to your mind are debt consolidation companies. However, you have to be very careful while choosing a company. There are many fake companies who cheat people. To protect yourself from such scams you should learn about the different debt consolidation companies and how they operate.
In the debt consolidation market, debt settlement is a very popular option. Debt settlement is a process of negotiations with the creditors in order to get a reduction in the debt. This reduction takes the outstanding balance and makes it payable in easy installments. A person can opt for debt consolidation through debt settlement or can do it on his own. There are a lot of debt relief companies that help people in both the options. Let us discuss them one by one.
The debt consolidation companies which sell debt settlement programs can reduce your credit score temporarily. However, this effect lasts only for a short period and when the process stops they raise your credit score. Thus, you have to be careful while choosing a company that sells these programs.
A company which does not sell debt consolidation programs is not legitimate. Legitimate companies do not sell credit score reduction programs and if they do so then they explain to you the procedure and give you all the legalities required for reducing your debt. They also sell loans and pay off your loans.
Debt consolidation companies that do not sell debt settlement programs are those which require you to open a savings account and put money into it. They tell you to save up and then the account becomes your debt consolidation account. You have to save up every month and make monthly payments to them. When your account gets low, they slowly start paying off your debts.
You might have problems paying back your creditors on time but you are supposed to contact your creditors and try and work out a solution. You can contact them personally and ask for a debt consolidation loan. You must not contact them and threaten them with bankruptcy or lawsuits. This will increase your credit report and you will lose all benefits that you would have received if you had been honest and repaid your debts timely. Thus creditors do not accept debt settlement companies on their terms easily.
If your debt settlement company insists that they will lower your interest rates or eliminate late fees then you should make sure you are not getting this reduced or elimination without some kind of catch. Creditors generally agree to debt settlement only when they are confident that their interest rate or late fee will be lowered enough to give you a profit. If they insist that there will be no profit then creditors will be forced to go for a debt settlement with a much higher interest rate than what you actually want or need. This will be unwise for you because it will force you into debt again in the near future.
You should also be aware that a debt settlement company will not be able to help you with your credit card payments unless you agree to stop paying them. Usually this means putting a hold on your credit card accounts but it could also mean that you stop paying anything else to creditors until the debts are settled. If you go for this option then the savings account will be negatively impacted because the interest rates will be high and the fees range will be high too. Thus you should keep this in mind because sometimes creditors do offer stop paying options for very high savings accounts. You should therefore choose a debt consolidation company that offers you a good option and one that will not hurt your savings account.