Not All Debt Consolidation Loan Companies Are The Same

If you're drowning in debt and dealing with constant calls from creditors, the promises of a debt consolidation loan can seem like a great escape. But can you count on a consolidation loan to solve your financial woes? Before you invest your time or money into a program, it's important to know what you're getting into.

First of all, remember that there is no such thing as a quick fix for debt problems. Companies that offer consolidation loans work as the go-between. They negotiate with your creditors to get you a lower interest rate on your debts. Then you pay the consolidation company a lump sum each month until the balance is paid off. It sounds simple enough. Yet somehow, around 70% of people who take out a consolidation loan end up in even more debt within two years. How is it happening?

The answer is in the fine print. The consolidation loan is exactly that: Another loan. The consolidation company is essentially paying off your debt for you, and then allowing you to pay them back. What you've done is add another creditor to your list. And if you've had problems paying your bills in the first place, there's no guarantee that you'll be able to keep up your consolidation loan payments. It sounds easy, but if it was easy, wouldn't you just negotiate payments with your original creditors in the first place?

Although consolidation companies promise to lower your current interest rates, chances are good that if you're in enough trouble to be searching for a pay-off loan, then your credit is not in very good shape. Thus, you most likely won't qualify for the low rates that the company advertises, and the savings in interest might turn out to be basically zilch.

So what of the promise that the consolidation company will handle the creditors for you? For some people, the idea of not having to deal with collection agencies is enough incentive to get them to sign on the dotted line. But in fact, filing for bankruptcy is the only sure-fire way to make the calls from the creditors stop. A debt consolidation company is not a legal representative for you in any way. While it's true that the calls from creditors might decrease since they should be receiving payments, it's no guarantee that they'll leave you alone altogether.

Finally, the sad fact is that some of the consolidation loan companies offer shoddy service, high rates, or are plain old scams. Check with credit counseling bureaus to see if the company you're considering is registered. Do your research and create a debt relief plan.. Keep in mind that a consolidation loan leaves a black mark on your credit- so if you're going to do it, make sure you'll get the results you need. Keep in mind that the only tried and true way to get out of debt is to negotiate with your original creditors- and then pay up as best as you can.