Credit consolidators have become an attractive option for many people who have fallen behind with their credit card payments and other financial obligations. Those looking for a quick way out of debt will find several credit consolidation options, with pros and cons for each. The experts at Bankrate.com and ExpertLaw. com have comprehensive advice on what to look for if you are considering using a credit consolidator.
Credit Consolidator Pros
Some credit consolidators will offer you a loan in one lump sum intended to pay off all your debts---from credit cards, mortgage arrears, student loans and medical bills.
Other consolidators will offer a payment management program. With this option, the consolidators negotiate with your credit card companies to help settle your debts and pay off all of them through one monthly payment that is lower than your total monthly payments.
Both these options give you one payment and one creditor, which is often much easier to deal with. Once you go through a debt consolidator, you can direct any harassing calls from debt collection agencies to the consolidators.
Credit consolidators can also save you money, thanks to any negotiated settlements they arrange with your creditors.
Other Credit Consolidators Pros
Credit consolidators tend to offer lower interest rates than the rates of your current debt. If your credit consolidator offers a monthly agreement, once you pay off one debt, you can roll over the payment toward remaining debts, paying them off even more quickly.
The biggest advantage of using a credit consolidator is that there is no need to file for bankruptcy and ruin your credit for years. The structured plan will get you out of debt within a specific period of time.
Cons of Credit Consolidators
One of the biggest disadvantages of using a credit consolidator is that the company might offer you a loan only if you own a house, which they will expect you to use as security for the loan. If you don't own a home, your interest rate will actually be higher than the consolidator's ads indicate.
The more of a credit risk you are, the higher the interest rate, according to MSN Money. Once you apply for debt consolidation, the credit counseling company knows your full financial predicament---and just how desperate you are. Worse still, you may damage your credit rating even further. Unless you are paying off all your debts in full through a consolidator-issued loan, any debt settlement you make will appear on your credit report.
Hidden Costs of Credit Consolidators
Another thing to beware of with debt consolidation is the long-term costs. The monthly payments and interest rate might appear lower in the short-term, but you might end up with a longer-term loan, warns ExpertLaw.com.
In addition, the monthly fee quoted might seem reasonable but may be subject to hidden costs, such as application fees, balance transfer fees, high administrative fees or early repayment penalties, which can add a lot to the final amount.
Reliability of Credit Consolidators
Unfortunately, not all debt consolidation services have proven trustworthy and reliable. They may not be able to do all they claim in their marketing materials. Research to compare companies, offers and customer reviews. Consider using nonprofit companies if possible.
Also, be extra vigilant when it comes to any financial paperwork if you sign with a credit consolidator. You need verification in writing that the payments will be applied to your credit card accounts on time each month. Otherwise, you might be liable for more fees or even considered in breach of the agreement.
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