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Do Payday Loan Consolidation Companies Work?

It’s tempting to look for a quick and easy way to solve your debt problems when you are having difficulty paying your bills. You’ll probably come across companies that promote debt consolidation. Many “debt consolidation” companies sell a less controversial product: debt settlement.

Most consumers consider debt settlement risky. After you have exhausted all other options, debt settlement should not be considered. It is costly and can cause serious credit damage. Any savings may take many years to realize.

Comparison of Debt Consolidation and Debt Settlement

The key difference between debt consolidation or debt settlement is who is in charge. You won’t lose money on services or outcomes you didn’t expect by understanding the differences between these approaches.

Consolidating debt is an easy strategy you can do yourself. You can enroll in a debt settlement plan to help you reach a debt relief company that might or may not be able to successfully resolve your debt.

Programs for Debt Consolidation

Companies that call themselves debt consolidation companies sell debt settlement programs. These programs require that you stop paying your bills directly to creditors and instead pay monthly into a separate savings account.

The debt settlement company will start negotiations with creditors once there is enough money in the account. This usually happens after six months. You’ll pay the creditor the agreed payment and the fee to the debt settlement company.

Are they worth it?

The short answer is: Only use debt settlement companies as a last resort. You could be charged multiple fees for enrolling in a settlement plan.

The service fees can range from 18% to 25 percent of your enrolled debt. This translates to $900 to $1250 for $5,000 of debt. You may also have to pay fees for opening or maintaining a savings account.

If you stop paying your bills on time, interest and late fees are added to your balances. These higher amounts will be due to you if the debt settlement company fails.

DIY is a better choice

Do-it-yourself debt settlement

Although settlement companies claim to be experts at negotiating with creditors. But if you feel that debt settlement is the best option for you, you have the right to negotiate your terms. You will need to have confidence in your ability and sufficient cash to settle the matter. However, you can save considerable time and money.

Do-it-yourself debt consolidation

Consolidating multiple debts into one at lower interest rates can help you save money and your credit. This process can be approached in many ways like using a balance transfer credit card or taking out a home equity loan.

I still need expert help

A nonprofit credit counseling agency can provide expert advice if you need it. These agencies can help you figure out the best way to manage your debt. These organizations can help you set up a debt management program, which is safer than services provided by debt settlement companies.

These are the basic guidelines to follow if you decide to hire a debt resolution company after considering all options.

How to verify a debt consolidation company

To verify if the company has been registered, consult the Financial Counseling Association of America or the National Foundation of Credit Counseling. To maintain their credibility, reputable companies will be registered.

The Better Business Bureau is a good place to start. To view accreditation information and reviews, search for the company name in the BBB database.

Ask friends and family who have used settlement companies for recommendations.

 

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