Consumers who need help with consolidating bills are aware of many companies that promise debt solutions that seem to be good to be true. They may indeed not be true, according to the Federal Trade Commission (FTC.) The FTC has prosecuted over a dozen credit counseling agencies and the IRS has issued a warning to consumers about selecting a debt consolidation company. According to Clear Point, an agency recommended by the Better Business Bureau, it is tempting to pay off all debts with a debt consolidation loan, using equity in your home. However, if your spending habits don't change, a debt consolidation loan can be risky.
Debt Consolidation Option
Rather than taking out a home equity loan for debt consolidation, Clear Point recommends consolidating bills by restructuring existing unsecured debts so they can be paid off more quickly. The types of bills that be consolidated include credit cards, retail cards, finance company loans, medical bills, past-due utility bills and attorney's bills. Legitimate debt consolidation requires counseling as well as the consolidation process, and results in changed habits, a renegotiated rate and one monthly payment toward all bills.
When Debt Consolidation is the Right Move
Debt consolidation may be the best step if a consumer finds himself dodging collection calls, feels overwhelmed by several outstanding debts with high interest rates, is only able to make minimum monthly payments, is "maxed out" on credit cards and is unable to put any money in savings.
Debt Consolidation Process
A legitimate credit counselor reviews your finances in a budget-counseling session, followed by a presentation of options. If a debt consolidation program is best for an individual situation, the counselor will recommend a program. In debt consolidation, the consumer pays an agreed monthly amount to the counseling agency, which disperses the funds to your creditors. The counseling agency keeps a specified amount for negotiating with creditors and disbursing the payments. The agency sends you monthly statements as the process continues.
Finding Legitimate Help
Considering the warnings from the FTC and the IRS, care should be used in selecting a credit counselor. The FTC offers guidelines for selecting a legitimate credit counseling agency, as does the Better Business Bureau. The counselor will need to know all of the accounts on which you owe and information on your income. If a debt management program is right for your situation, the sooner you are on the road to a debt-free future, the better.
Other Debt Management Options
According to the FTC's "Knee Deep in Debt," self-help debt management involves careful budgeting and negotiating with debtors on your own. Another option is bankruptcy, which is designed to provide debt relief by a discharge of all unsecured debts. Bankruptcies remain on your credit report and usually require the services of an attorney, but bankruptcy can provide consumers with a fresh start.
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