It's a booming industry and it’s not really surprising, The United States of America is awash with almost $744 billion of credit card debt and that’s the kind of credit card bill that would even make the likes of Bill Gates lose some sleep!  Unfortunately, where there’s money, there’s fraud and the recent influx of vast numbers of debt management companies (in the global marketplace) begs the question; is it worth it?

I am blessed that I have a good editor who has kindly characterised my post for me and on his direct suggestion I’m going to look at the three different categories suggested which have been labelled; The Good, The Bad and the Ugly.

The Good
Of course debt consolidation carried out correctly via the correct sources is going to give eventual benefit to those people who have the will power to stick to the plan laid out for them and the benefits can be as follows;

 

1. An improved Credit Rating
2. Frozen or reduced interest rates
3. Reduced Monthly Payments
4. A single monthly fee to a single company
5. Hassle free debt
6. Potentially tax benefits

 

Looking at the above you may be forgiven for diving for the nearest telephone or clicking the nearest link in order to get those plans immediately underway, and surely if you are a responsible individual I would encourage you to do so. However, hang back for a moment as there is further information on debt consolidation which perhaps you should consider before you embark upon a journey which may just make things worse if you do not approach the subject armed with the correct information.

The Bad
The desire for many to reduce one’s monthly outgoings can often be too strong to bear and a debt consolidation plan is not something that should be taken lightly as it can often be a long term commitment. There is always the risk that having saved a substantial amount on those monthly outgoings that the additional and newfound freedom may be spent frivolously rather than directing it back at chopping away at your overall debt. Here are some of the disadvantages of entering a debt consolidation plan;

1. Increase your debt – By spending the savings
2. Increased term – Often the payments are reduced by prolonging the debt over an increased term
3. Increased costs – Reduced payments may look appealing, but a marginally smaller interest rate over a much increased period will inevitably lead to paying more back than was initially agreed
4. Single Payments – A single payment may appeal to the troubled and weary debtor, however this will inevitably mean the loss of control over how long your debt will last and mean losing your negotiating ability with your creditors. Sometimes having smaller debts enables you to eat away at them one by one giving you a sense of improvement. A one stop shop is exactly that!

 

So, you can see that whilst in isolation the benefits appear almost too good to be true, in actual fact you will be giving up certain rights and taking an almost irreversible step by signing on the dotted line of any debt consolidation agreement. Whilst I still advocate the use of debt consolidation plans, I do not recommend them as an easy way out. Remember the old saying; "There’s no such thing as a free lunch".

There is of course the one area of debt consolidation that I have yet to allude to;

StarReviews Top 3 Debt Consolidation Sites

1) Care One

2) Credit.com

3) CuraDebt

Compare All Debt Consolidation Sites

The Ugly
Unfortunately, as mentioned at the beginning of my post, where there is money there is generally somebody trying to make substantial amounts of it from the less "wary" or indeed the most "weary".  The vast amount of global debt and the current financial crisis has encouraged the good, the bad and the down right ugly into the debt recovery business indeed a representative of the CFA was reported as saying;

"We've got a lot of shady operators. Why are a lot of shady people getting into the credit-counselling business? Because that's where the money is," says Travis Plunkett, legislative director at Consumer Federation of America. "Business is booming."

... and here is some of the ugly;

1. Losing your home – Using the equity on your home to consolidate debt is all well and good whilst interest rates remain low, but when they return to a more historical "norm", beware, as defaulting on payments could lead you to lose your home.
2. Unscrupulous Operators – There are many debt consolidation companies out there who will promise substantial reductions to your monthly payments and in effect deliver, however, there are a growing number of cases where individuals have reported that these companies have not passed the payments on to those creditors.
3. Fees – Different debt consolidation companies charge different fees and you could legitimately find that you have signed up to agreement which line the pockets of others without actually impacting upon your debts at all.

 

Overall, debt consolidation is one of the only options available to debtors who wish to regain their credit ratings and get their lives back on track, but there are obstacles to be considered prior to engaging an unknown company to effectively become a life partner.  Look around and engage well known companies and remember you only get one opportunity to get it right.

Tags: debt consolidation, finance, money