"Should You Use Debt Consolidation Agencies?" Answer: No!
Instead: Find a lender who:
1. Offers a (much) lower interest rate than the one(s) you're currently on;
2. Has low arrangements fees, and
3. Low or non-existent pre-payment penalties and late fees.
A debt consolidation loan might then work. Debt consolidation is the last resort of the unwise, or the desperate, especially if you use an agency. Do It Yourself.
OR: Negotiate with your creditors individually.
Traditionally, you amalgamate all your debts into one lump sum, owed to a single company, and get the old debts paid off by said company. They handle the paperwork. The catch is, to get this done, you pay a fee to the debt consolidation agent. So in effect you are still in debt, and are paying a fee on top.
Also, debt consolidation agencies interpose themselves between you and your creditors; another layer of bureaucracy, more chance for something to go wrong.
Also, the fact that you're using a debt consolidation agency will show up on your credit report. This will affect your (future) credit rating.
Are you having money worries? Too many splurges on the ol' credit card? Bought a 4X4 on HP, and can't keep up the payments? Here's another tip: Re-negotiate.
If the alternative is bankruptcy, your creditors will take something now, rather than next-to-nothing later. Loan finance is just another business. You have bought money for more than it cost the lender. Debt consolidation is the last resort of the uninformed. If you're going broke, and you've no assets that can be sold off, like a house or fancy car, your creditor will be more likely to agree new terms. You can't get blood out of a stone!
You can re-negotiate unsecured debts. The are debts where you haven't put up property as collateral. These include: - Medical bills;
- Credit cards;
- Department store cards;
- Personal loans;
- Student loans;
- Bounced cheques.
Difficult to re-negotiate - secured debts. These are debts secured on cars or houses.
Even if you do have secured debts, who wants the hassle of a court case to get assets from you? A new agreement to pay off the loan at a reduced rate, or a lower monthly payment, makes much more business sense, than debt consolidation.
And regarding said assets: Can you sell the car at a good price, and get a cheaper one, or move to a smaller house, and pay off your debts? Can you rein in your monthly expenditure?
All these little treats that got you into debt, that you gave yourself, because you're unhappy, add up. Address the cause of your unhappiness, and your need for treats will diminish. You'll then have more money in the bank, and be happier. A sunny day, a walk in the park, the scent of a rose are all free, and a much better tonic than a fancy stereo or umpteen pairs of shoes.
Heck, you can keep your house, if you re-negotiate with your lender; they don't want the hassle of evicting you. It's a case of what is more profitable and easier; evicting you, or getting money up front. You can avoid debt consolidation companies altogether. Being in debt is fine as long as you keep up the payments, are never late, and never default. Then everyone wants to lend you money.
When you do get into trouble, that's when the fun starts. Then, when you DO really need a loan, for an emergency, you may have trouble getting it.
Take the advice your grandmother told you: never a borrower or a lender be. Borrow only to make more money i.e. for a business. Don't get into debt for frivolous reasons. Pay off your debts as soon as you can.
Don't call a debt consolidation company because you can't be bothered to haggle with your creditors.
Then you will truly be free.
So get in there and haggle! What have you got to lose? For example, it is possible to get 25-50% off your credit-card debt, your credit-card account closed, and go on a payment plan instead. IMPORTANT: Make sure you stipulate to your creditors they are not to report you to credit referencing agencies as being 'late' with your payments, if you re-negotiate for lower payments. Then your credit rating will be unaffected.
Take your time. Don't be too eager to settle. Hang the threat of your bankruptcy over their heads.
KEEP WRITTEN RECORDS. Get everything in writing. Phone calls are not legally binding.
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