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 affect your wallet and credit score.
by Erin El Issa Senior Writer Data analysis, personal finance credit card Erin El Issa writes data-driven studies about personal finance, credit cards, investments, travel, as well as student loans. She loves numbers and aims to demystify data sets to assist people in improving the quality of their lives financially. Before she became the Nerd during 2014, she was a tax accountant and freelance personal financial writer. Erin's writing has been featured by The New York Times, CNBC as well as The "Today" program, Forbes and elsewhere. In her free time, 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 small-business and personal-loans 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 finance, 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 working at The Oregonian in Portland in capacities such as chief of the copy desk and team director of design and editing. Prior experience includes news and copy editing at many Southern California newspapers, including the Los Angeles Times. She received a bachelor's degree in mass communications and journalism from Iowa's University of Iowa.







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When you're struggling to make repayments on debt, it's tempting to look for an easy and quick solution. While doing this you'll probably come across companies that offer debt consolidation. But the majority of "debt consolidation companies" actually offer a much more controversial product: debt settlement.
For most consumers, is an unwise choice. It should only be considered after exhausting other options. It's costlyand could seriously damage your credit score, and any savings can take years to achieve.
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Debt consolidation Vs. debt settlement
A key difference between debt consolidation and debt settlement is who is the one in the deciding role.
Understanding the differences between these two methods makes sure you don't end up losing money on the outcome or service that you didn't expect.
Debt consolidation is a do-it-yourself method that you can control. Participating in the debt settlement program places you in the hands debt relief companies that may or might not be able to successfully settle your debt.
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Debt 'consolidation' programs
The companies that claim to be debt consolidation companies, like and , in fact offer debt settlement plans that require you to stop paying your bills and instead pay your monthly bills into an account for savings.
If there's enough cash in that account, typically after six months, the debt settlement company will begin discussions with your creditors. If they reach an agreement to pay the debtor the agreed-upon amount from the account and also pay the debt settlement firm a fee for its service.
Companies that offer debt settlement can help you save of between 20% and 35% after their fees.
Are they worth it?
This is the quick answer The answer is to turn to the debt settlement services only as a last resort. Incorporating a settlement plan can cost you in multiple ways:
The fees for service vary from 18% to 25 percent of the debt you have enrolled, which translates into the range of $900 to $1250 on the amount of debt you owe. There could also be charges for opening and maintaining an account for savings.
If you don't pay your bills, interest and late fees are added to your balances. If the company that you contracted with to settle your debt fails to pay your debt, you'll be with these debts.
Your credit suffers a hefty hit and you could be contacted with legal action and collections of your lenders.
There may be , as the amount of debt you didn't pay was usually declared to IRS for tax purposes as income.

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Better option: DIY
Do-it-yourself debt settlement: Settlement companies boast their experience in negotiating with creditors, however -If you're certain that debt settlement is your best choice, you may try . You must be confident in your ability to work with creditors and enough cash on hand to settle, but you can make significant savings in time and money.
Do-it yourself debt consolidation getting control of debt by consolidating several debts into one with a lower interest rate can also save money -- as well as your credit. There are multiple options to go about this, including:
Credit card for balance transfer If you are eligible, a 0% interest account credit is your best option to consolidate debt.
Find an interest rate that is lower than the rates you're paying on your existing 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.

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I still need expert help
If you're in need of expert advice look into contacting the nonprofit sector . These organizations can help determine the best way to manage your debt. They can also assist in setting up a , which is an alternative to the services provided by debt settlement firms.
>> COMPARE:
And if, after considering all options and options, you decide to employ a debt settlement company adhere to these fundamental guidelines:
Visit the to verify whether the company is registered. Reputable companies will likely be registered to maintain credibility.
Go through the . Find the company's name within the BBB database to see accreditation details and customer reviews.
Ask your trusted family members or acquaintances who have worked with an settlement company.




The authors' bios: Erin El Issa is a credit cards expert and studies writer at NerdWallet. The work she has written for NerdWallet was featured in USA Today, U.S. News and MarketWatch.


Jackie Zimmerman is a former small-business and personal-loans writer for NerdWallet. Her work has been featured on USA Today and Money.com.







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