Debt Consolidation Companies: What Exactly Do They Do?

[Dec 26, 2008.]

 

Basically, what a bad credit consolidation company does is that it acts as your mediator. Your first contact with a non-profit debt consolidation company, will be speaking with a Certified Credit Counselor. They talk to your creditors and try to lower both your interest rates and monthly payments. They will ask you several questions about your debts and the money you earn. They will also need to know what you hope to achieve through a relationship with their company.

After a review of your application the credit counselor will put together a few strategies for debt consolidation based on your answers. Both of you will come to a decision on the best course of action. Once you have decided on the program and the monthly amount you will pay, you will sign a simple contract with the non-profit debt consolidation company and the plan will be set in motion.

You will send them one sum and they take care of paying your creditors. Non-profit debt consolidation companies offer services to lower your monthly payments to creditors, reduce or eliminate interest fees and are having success at this by cutting the amount of the debt 35 to 75% of the original balance.

Now in theory, that's what they're supposed to do. The companies that are running scams often keep much of that money you sent them and call it "administration fees" or " loan origination fees", even though no loan has been or originated. What this means to you is that your creditors will continue to harass you about your account as you become delinquent on your payments to your creditors who report that to the credit reporting agencies. The money that you sent to these companies never makes it to the creditors it just lines the pockets of the owners of these companies.

Knowing the difference between the two types of companies can save you from future financial difficulty.  Choosing wisely will only benefit you in the long run, so pay close attention to how the company asks for money and know what they are supposed to do and you will be just fine.

 

About Author:

Brent Lane is a Mortgage Consultant in Roseville, California. He helps homeowners in California with their mortgage financing and writes on his BLOG at www.thelanegroup.blogspot.com