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Are Debt Consolidation Companies Worth It?
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Are Debt Consolidation Companies Worth It?
Debt consolidation companies often sell programs to settle debts that could negatively impact your wallet and credit score.
Written by Erin El Issa Senior Writer Personal finance, data analysis, credit card Erin El Issa writes data-driven studies about personal finances, credit cards travel, investing, banking and student loans. She is fascinated by numbers and strives to demystify data sets to assist consumers in improving the quality of their lives financially. Prior to becoming the Nerd at the beginning of 2014, Erin worked as an accountant for tax purposes and freelance personal financial writer. Erin’s work has been cited by The New York Times, CNBC and The “Today” program, Forbes and elsewhere. In her spare moments, Erin reads voraciously and struggles to keep on top of her two children. Erin is from Ypsilanti, Michigan.as well as Jackie Zimmermann Jackie Zimmerman is a former personal-loans and small-business writer for NerdWallet. Her writing has been featured in USA Today and Money.com.
Aug 6 7th, 2021
Written by Kathy Hinson Lead Assigning Editor Personal finances, credit scoring financial management and debt Kathy Hinson leads the core personal finance team at NerdWallet. Prior to joining NerdWallet, she worked for 18 years at The Oregonian in Portland in capacities such as chief of the copy desk and team editor and designer. Her previous experience includes news and copy editing at many Southern California newspapers, including the Los Angeles Times. She received a bachelor’s degree in mass communication and journalism at The University of Iowa.
A majority of the products featured here come from our partners, who pay us. This affects the products we review and where and how the product is featured on the page. But, it doesn’t influence our evaluations. Our opinions are our own. Here’s a list of and .
When you’re struggling to make the payments to your credit card, it’s tempting to seek an immediate and simple solution. When you do this you’ll probably come across companies promoting debt consolidation. However, many “debt consolidation companies” offer a more controversial product: debt settlement.
For most consumers, is the most risky choice. It should only be considered after exhausting all other options. It’s expensive, and it could severely damage your credit and any savings could take years to be realized.
Find your debt in a simple method
Join NerdWallet to see your current debt breakdown and future payments all in one spot.Debt consolidation is different from. debt settlement
A key difference between debt consolidation and debt settlement is who is in the deciding role.
Understanding the differences between these two methods makes sure you don’t end with a loss of money due to an outcome or service you don’t anticipate.
Debt consolidation is a do-it-yourself option that you are in control of. Incorporating an agreement to settle your debt puts your finances in the hands companies offering debt relief that could or might not be able to successfully settle your debt.
>> MORE:
Consolidation programs for debt
Businesses that bill themselves as debt consolidation companies, like and even sell debt settlement programs that will require you to stop making payments to your creditors and instead make monthly payments into separate savings accounts.
If there’s enough cash in that account, typically after six months the company that handles debt settlement will begin discussions with your creditors. If they come to an agreement that you can meet with the creditor, you’ll make the agreed-upon amount from that account, and pay the debt settlement company the cost of its services.
Debt settlement companies offer savings of between 20% and 35% after their fees.
So, are they worth the cost?
The short answer is The answer is to turn to debt settlement companies only in the last instance. Participating in a settlement program could cost you in a variety of ways:
Service charges range from 18% to 25% of your enrolled debt, which translates into between $900 and $1,250 for $5,000 of debt. There are also fees for the opening and maintenance of the savings account.
When you stop paying your bills, interest and late fees accrue on your balances. If the company that you contracted with to settle your debt isn’t able to settle any outstanding debts, you’ll end up with these debts.
Your credit suffers a hefty hit, and you may receive legal action and collections by your debtors.
It could be, since the amount you didn’t pay was usually disclosed to IRS in the form of income.>> MORE:
Better option: DIY
DIY debt settlement: The settlement firms boast their experience in negotiating with creditors, however -If you’re certain that debt settlement is your best choice, you can try to . It requires confidence in your ability to work with creditors and have enough money in your bank account to settle the debt however, you could make significant savings in time and money.
Do-it-yourself debt consolidation getting control of the burden of debt by consolidating multiple debts into one at an interest rate that is lower can also save money -and also your credit. There are multiple ways to approach this process and include:
Credit card balance transfer If you’re eligible for a zero-interest balance transfer credit card is the best option to consolidate the burden of debt.
You should look for a rate that’s less expensive than the rates that you have on your credit.
Equity in your home: Home equity loans and lines of credit have low interest rates, but you’ll also put your home at possibility of repossession if aren’t paying as per the agreement.>> MORE:
I still need expert help
If you require expert advice, consider reaching out to the nonprofit sector . They can assist you to find the best method to get a handle on your debt. They can also help you set up a, which is an alternative that is more secure than the solutions offered by debt settlement companies.
>> COMPARE:
After evaluating all the alternatives, you choose to hire an organization for debt settlement adhere to these fundamental guidelines:
Visit the, to determine whether the company is registered. The most reliable companies are registered to maintain credibility.
Take a look at the . Find the company’s name on the BBB database to view accreditation details and customer reviews.
You can ask trusted family members or friends who have used a settlement company.About the authors: Erin El Issa is a credit cards expert and writer on studies at NerdWallet. Her work has been highlighted by USA Today, U.S. News and MarketWatch.
Jackie Zimmerman is a former small-business and personal-loans writer for NerdWallet. Her work has been highlighted by USA Today and Money.com.
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