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Debt Consolidation Agency
 Jun 08, 2004

Many people become overwhelmed by debt. Debt consolidation agencies are designed to help people reduce debt. This article will review the pros and cons of debt consolidation services and offer tips on choosing a reputable debt consolidation agency.

Debt can be overwhelming. In some cases, you may have so many debts and so many payments that it is hard to keep track of it all. Additionally, all the separate interest charges start to add up, making it difficult for you to effectively reduce your debt. In cases like this, debt consolidation can help you get everything in one place, making it a little easier to effectively pay down your debt.

Debt consolidation agency

There are many different organizations out there that claim to help you as you strive to pay off debt. And for many people, a debt consolidation agency can provide good help in terms of getting everything organized and creating a program that can followed to help with debt reduction.

A debt consolidation agency usually has you give them a list of all of your debts and creditors. Then you make one payment to the debt consolidation agency and the agency then disburses payments to your creditors. Usually, as part of the consolidation process, the agency negotiates a lower interest rate with your creditors. By combining your payments into one, and by having lower interest, you can usually put more toward the principal of your debt, as well as make it easier to make a payment each month.

Debt consolidation loan

In some cases, a debt consolidation agency may suggest a debt consolidation loan. There are organizations that offer loans to immediately pay off your smaller debts. Rather than disbursing payments each month, the agency pays off all of the debt, and you make payments to the agency. Usually this type of debt consolidation is secured with a home loan. This means that you have to use the equity in your home to cover the debt if you default.

While a home equity debt consolidation loan can help you by lowering your payments and your interest charges, this something not to be taken likely. If you default on your unsecured debt, your home is still safe. Once you use your home equity to pay off your debt, your home is on the line and you could lose it should further financial problems arise.

Choosing a reputable debt consolidation agency

If you decide that debt consolidation is the route for you, you need to find a debt consolidation agency. Choosing a debt consolidation agency should focus on finding a company that has a good reputation. There are many companies and agencies that charge very high fees, effectively slowing your efforts to pay off debt. Even worse, there are debt consolidation agencies that are no more than scams. They try to get your personal information and even take some of your payments meant for creditors. Do your research beforehand to reduce the chances that you will become a victim of a scam.

Red flags when choosing a debt consolidation agency

There are some red flags that can alert you to a possible problem with the debt consolidation agency you are considering. Here are some things to be wary of when choosing a debt consolidation agency:

  • A guarantee of a loan or line of credit. There should be no guarantee. Even a debt consolidation loan is dependent upon factors like your credit and income.
  • Advanced payment. Do not send in advanced payments before you are signed up for a program. Also watch out for high application fees. Any company requiring a $75 to $150 program application fee should be subject to your suspicion.
  • Requirement for personal information. Personal information should not be solicited from you up front. The agency should become familiar with the general nature of your situation before getting to that point. Watch out if the service asks for a credit card number.
  • Consider where you found the ad. A debt consolidation agency that advertises in the Classifieds, that can be a tip-off. While not all agencies that advertise on local radio, late-night TV and Classifieds are scams, many of them are, and extra caution is needed.
  • Find out how products are delivered. Most reputable companies will send information via the postal service or UPS. If an overnight "personal" or "private" courier is used, that could be red flag. In many cases scammers will use these types of delivery methods so that they are not prosecuted for fraud by the Postal Service.

Indications of a potentially good debt consolidation agency

There are a few basic practices that most reputable debt consolidation agencies employ. Here are signs that you are likely dealing with a debt consolidation agency that is legitimate:

  • A requirement of a written acceptance of the loan offer.
  • Credit check is required.
  • Small application fee ($15 to $35).
  • Clear and transparent terms and conditions.
    If you are looking to consolidate debt, you are at a vulnerable place. Be sure that you are not taken advantage of by a debt consolidation agency that is less than reputable.

Related Article: Understanding Debt >>

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