People dealing with out-of-control debt may attempt to pay down balances on their own. When they are unable to put a dent in enormous balances, however, some consider employing the help of debt reduction companies. There are benefits and disadvantages to using professional help for debt problems. Before contacting a company for assistance, know the pros and the cons.
Consolidation
The ability to consolidate debt is a huge advantage to working with a debt reduction company. To manage debt and ultimately help you reduce balances, debt reduction companies simplify your finances by merging your different credit accounts into one bill. This removes the hassle of working with numerous creditors each month and keeping up with various accounts.
Lower Interest Rate
Interest rate reductions on credit cards are key to eliminating debt faster and lowering the amount of interest paid throughout the life of an account. Consumers can contact their credit card companies and ask for a rate reduction. Credit card companies, however, aren't obligated to meet these requests. On the other hand, debt reduction companies have ongoing relationships with different credit card companies, and one call from a debt reduction company to your card company can result in better rates and lower minimum payments.
Pay Bills for You
Another major benefit of working with a debt reduction company is that they make all your monthly payments for you. Once debts are combined or consolidated, the chosen debt reduction company will send you a monthly statement each month. These companies apply the amount paid each month to all your credit accounts. No longer will you send individual payments to all your creditors. This system works well for individuals who have difficulty managing several credit accounts.
Third Party Assistance
Despite the benefits of working with a debt reduction company, there are risks associated with this chosen method. Using a company to help manage your debts can suggest poor debt management skills and desperation. Although credit card companies readily negotiate with debt reduction companies to lower your rate and payment, your card company will attach a note to your credit file that reads "third party assistance." Thus, future creditors reviewing your credit report will see that you requested help in the past, and they may deny your credit application.
Payment Issues
Another drawback to using a debt reduction company is that they may pay your creditors late, which can harm your credit score. Stay on top of your debt reduction company to ensure that they forward payments to your individual creditors on time. Contact your creditors frequently to check the status of your account. You can stop using a debt reduction company at any time and regain control of your credit accounts if you suspect mismanagement of your debts.
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