Free Debt Consolidation Services - Are They Really Free?
Advertisements for free debt consolidation are popping up everywhere, but they bring up the vital question, “Are they really free?” How can a service afford to offer free debt consolidation? If they aren't making money, how can they stay in business? To learn the answers to these questions, you need to understand how a debt consolidation service works.
Debt consolidation companies negotiate with your creditors.
When you work with a consolidation service, they talk to your creditors and negotiate to lower your debt. After they have negotiated to lower the amount you owe, with each of your creditors, you will notice that the amount of money you have to pay out each month is significantly lower than it was.
Debt consolidation companies don't give you a loan.
When you work with a debt consolidation company, they don't give you a loan that you then repay to them. Rather you make one monthly payment to the company and the company then distributes that money out to your creditors according to the terms that they negotiated. The single monthly payment you make will be lower than the total of payments you were making to all of your creditors and by following the payment schedule, you will pay off your debts sooner.
Debt consolidation companies do charge a fee.
When you send your monthly payment to the debt consolidation service they do take a fee from the amount you send to cover their services. Over the life of their services, the fee that they take should add up to less than the amount of money that they saved you by negotiating to lower your debts. Because you end up saving money by working with a debt consolidation service, the money that they do take did not come out of your pocket, but rather out of the money that they saved you, so that is why debt consolidation services can claim that the help they provide is free.
Recommended Debt Consolidation Companies:
Our Recommended Debt Consolidation Companies:
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Helpful Tips:
- Apply with more than one company to compare offers.
- Study your options before committing to a debt program.
- Cut out small luxuries to pay down debt at the beginning of your debt reduction program.
Debt consolidation companies vary in what types of consolidating solutions they offer. There are debt counseling companies, debt settlement and negotiation companies and debt management companies.
Debt Counseling - Debt counseling companies offer, usually, non-profit services to help you reduce the amount you owe on your debts. However this service may hurt your credit ranking. Talk to the company and find out if what they do will affect your credit ranking.
Debt settlement and negotiation - This is a process where a company will negotiate a lower payment or lower amount owed to the lender, on your behalf. Sometimes this can hurt your credit also. Debt settlement companies vary in their techniques. Before you choose a company, make sure you read through some reviews about that company before you start.
Debt Consolidation - Debt consolidation is where you take out a new loan in order to consolidate and pay off all existing debt. This usually lowers your overall payments and reduces the amount your paying every month. Not only does debt consolidation not hurt your credit, but it can actually help it.
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