Going through a debt consolidation company can help many dealing with debt and for those who can't solve the issue through any other options. While these companies do charge for their services, a lot of good can come out of going through them. Conversely, you could also have some liabilities and more if you happen to deal with a company that isn't entirely honest.
Pros
The biggest pro with going through a debt consolidation company is that you have a better chance of having your debt reduced or eliminated while working with the company's solutions. In some cases, the debt consolidation company will call credit card companies for you and negotiate with them on getting your debt reduced possibly by as much as half to 60 percent. Some companies will recommend you call creditors yourself and negotiate via tips from the debt consolidation company. These companies can also get credit card companies to tighten up your FICO credit score, which is a total score for your payment history and other credit factors. Thirty-five percent of FICO scores are your payment history, 30 percent the amount you currently owe, 20 percent for new credit accounts and 15 percent for the length of your credit history. Of course, the best pro of working with a debt consolidation company is that creditors may stop calling you once you negotiate a payment plan that works for both you and them.
Cons
One of the biggest drawbacks to a debt consolidation company is the cost. All will charge a standard fee for their services. Some even charge monthly fees if it takes that long to work with your creditors. You could be looking at laying out more money toward the debt consolidation company that you could put on your reduced debt. You also have to deal with your credit record being blemished for going through debt settlement methods. This would only be an issue for those who have perfect credit scores they don't want tainted. Also keep in mind that some creditors won't work with debt consolidators, especially if the company turns out to be a sham. Additionally, debt settlement can mean a hefty tax burden during tax season. Any debt forgiven that exceeds $600 will be taxed by the IRS and potentially place you into deeper financial trouble. Only bankruptcy is tax free.
Other Considerations
Debt consolidation companies aren't all bad, but make sure you check if they are in good standing with the Better Business Bureau. Also, check to see if the company is a member of the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies. Some sites also list the most reputable debt consolidation companies in the United States.
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