Bill Consolidation Services Come in Multiple Forms |
By Ashley Russell on May 2, 2011
.jpg.aspx) The promise of lower monthly payments, a "quick escape from debt," and other tag lines from bill consolidation services are enticing for many. Those drowning in debt often feel trapped and any promise of a quick easy escape is often sought after, even if it sounds too good to be true. As so often is the case in the financial world, if something sounds too good to be true it often is.
There are two main types of bill consolidation: debt consolidation loans and credit counseling. Both work to give consumers lower monthly payments, which in theory sound great. The problem comes in how these companies do this. Debt consolidation loans are loans with a slightly lower interest rate that are taken out by a consumer to pay off all debts owed. This simplifies the process of paying off debt and can, depending on interest rates, save consumers some interest fees. The smaller monthly payments, however, mean that individuals are paying off their debt for a longer period of time, often continuing the debt cycle longer than needed.
Credit counseling is where, along with advice on credit and personal financing, a company or non-profit attempts to negotiate lower interest rates on an individual's debt to make their monthly payments smaller and easier to pay. Although this is often a cheaper method than consolidation loans, credit counseling is sometimes as harmful as bankruptcy on the credit reports of individuals. Also, only a handful of individuals who start these programs actually complete them, meaning companies are collecting fees without actually helping that many people out of debt.
Before jumping into a "quick and easy" program to help save them from all of their debt woes, individuals should examine what exactly got them into debt in the first place. Although there are cases, especially with medical bills, where the consumer had little to no control over the situation, the majority of people in financial problems are there because of their own actions. Examining lifestyle choices and spending habits can go a long way to fixing financial problems, and it is a lot cheaper too. Because even if people who spend a lot of time and money on a bill consolidation service and complete it, unless they change their lifestyle and spending habits, they will be right back in the same situation down the road. |
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