Late-night commercials promising a debt-free lifestyle can make credit consolidators seem like an attractive and foolproof way to get out of debt. But before calling the number on the television screen, you should first educate yourself about the potential pros and cons of credit consolidators to be sure that you're making the best possible choice for both you and your money. When used properly, credit consolidation can be a huge help, but you should approach this option with caution.
Pro: Control
Consumers who have debts with various creditors can often feel the debt is out of control. When there is no possible way to pay all of the debts each month, some debtors may ignore payments, ruining their credit and pushing them deeper into debt. A credit consolidator can help you feel more in control by giving you a more manageable way to pay back debts with one payment per month. This can restore your financial confidence and put you back on the right track.
Con: Short-Term Solution
Credit consolidators can help you pay off the debt that you have now, but all of that help is moot if you don't learn how to properly control your spending. Financial website BankRate.com notes that a credit consolidator, no matter how helpful he may seem, is just another creditor. While he may give you relief from your current debts, he is also adding to them by charging you fees and interest rates to manage the debt.
Pro: Debt Paid Off
Those who are dedicated to having their debts paid off may see great success with a credit consolidator. While you'll have a set payment each month in order to pay off your debts, you can pay ahead extra each month in order to pay your debt off faster. Credit consolidators lower the amount of money outgoing, maintains credit website Rebuild.org, so that you have more money to use in paying off your debts.
Con: Disreputable Consolidators
Not all of the consolidators that you hear about are reputable. In fact, some are nothing more than clever scam artists who will take over your debt and charge you fees and high interest rates. Always checking with the Better Business Bureau before you sign a contract with a credit consolidator can help protect you, but you should always be wary of credit consolidators and read the agreements and contracts carefully.
Pro: Credit Repair
When the consolidator pays off all of your debts, still leaving the accounts open, and you begin paying your credit consolidator each month, your credit score will improve. The reporting agencies will see accounts with a zero balance, and your payment each month to help boost your score. Just be sure that you don't miss payments or your score could plummet again.
Con: Cost
The cost of hiring a credit consolidator to help you take care of your debts may be more than you realize. You'll incur fees for them taking over the debts, and interest rates are usually quite a bit higher than those that are advertised on television. In fact, if you are looking for debt help, you probably don't have the pristine credit score that you'll need to qualify for low interest rates. Ask for all of the terms, conditions and fees up front so that you don't get any surprises later.
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