Who Does Debt Consolidation?

Many banks, credit counseling agencies and private companies offer credit consolidation. However, it is a good idea to be sure of the integrity of the company you use to avoid even bigger headaches. First figure out how much interest you are paying on your debts now and whether consolidation -- complete with any extra fees -- would actually save you money. Then examine the various consolidation options: credit counselors, banks, credit cards and consolidation companies.

Credit Counseling Agencies

Credit counseling agencies offer a service called a debt management plan in which you pay them each month a set amount toward your unsecured debt (meaning not house or car payments but credit card and similar payments). They negotiate down fees and interest rates and make the payments each month. For this, they take a small fee, usually around $40 a month. MSN Money recommends choosing a credit counselor affiliated with the Association of Independent Consumer Credit Counseling Agencies or the National Federation for Credit Counselors. These agencies have certification requirements for counselors, charge low fees and have a reputation for following through on their promises to pay the debts. They also require consumers to cut up credit cards.

Banks

Sometimes a consumer can get one of several bank loans and use the money to pay off other debts. An installment loan is one of these loan products. Some people refinance mortgages or cars or take out home equity loans. These are all options for consolidating debt. The danger with one of these loans, especially the refinance or home equity, is that you now have put your house or car at risk. The benefit is that creditors look on these loans more kindly and you may lower your interest rate.

Credit Cards

Credit cards often suggest you move your high interest balances to their low interest cards and consolidate your debt. The problem is that applying for new credit can hurt your credit score. Moreover, many consumers who try this method only wind up racking up debt on the first credit card again. If you can show extreme discipline, this method could end up saving you money by lowering or erasing the interest rate on your debt.

Other Companies

Many companies that offer debt consolidation are bad news. They charge exorbitant fees through which you end up paying more than you would in the first place. They fail to pay the bills that you contracted them to pay, which hurts your credit even more. Using a credit-counseling agency or bank is much safer, but if you choose to use one of these credit consolidation companies be sure they're rated highly by the Better Business Bureau. Don't accept some certification of which you've never heard.