Many companies offer consumers what they call a free debt-reduction program by consolidating credit card bills and personal loans into one easy monthly payment. While there may be no upfront fee for using these programs, there are hidden charges that cost consumers using them.
Significance
Free debt consolidation can be advertised as free since it is not a loan. Not having a loan with fees and added costs is what is considered a free program. However, these companies will add in a small service fee or monthly membership fee that can add up over time.
Function
In October 2010, a ruling by the FTC is expected to reinforce that "free" debt consolidation and reduction companies cannot charge an initial sign-up fee. However, the companies may not be prohibited from charging a monthly fee.
Considerations
Consumers who are current on their credit-card bills can use debt-reduction calculators to calculate the monthly payments required to pay off the balances in a set time. By sticking to your own disciplined plan, you can rid yourself of credit-card debt without the additional cost of using a debt-reduction company.
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