We've all seen them in television commercials: images of a woman struggling with a calculator, an exhausted man speaking on the phone, and a voiceover asking "Are you in debt? We can consolidate your debt into one low monthly payment!"
These are debt consolidation services. They act as negotiators, working on the behalf of a debtor. Ideally, they speak with credit card companies, health care facilities and other creditors to try to negotiate a lower payment for the consumer. The consumer then pays the consolidation service, and the service pays the creditors and takes a percentage off the top.
Of course, like so many other things that appear on TV, these debt relief services are rarely as easy or as effective as they are advertised to be. Consumers should be aware, however, that some of them may not help at all - rather, they could be cleverly-disguised scams.
One couple in Minnesota, for example, recently received an unsolicited letter from a San Diego company that informed the couple that they owed over $27,000 in debt. The company offered to help the couple out of their financial difficulties by consolidating their debt.
The couple, however, did not owe any debt. They sent the letters to a local newspaper, who investigated and discovered that the company was not licensed to operate in that state.
Consumers who are in debt should be careful when choosing a debt consolidation company, as there are many who do not operate in the consumer's best interests. If consumers do wish to seek out a debt consolidator, they shouldn't pick a company that takes its fees in advance; rather, they should seek out reputable businesses that take their fees as a percentage at the end of the process.
While debt consolidation companies can be a useful tool in some cases, many times they are simply not able to overcome a consumer's debt load. In these situations, bankruptcy may be the best option for the consumer to rise above his or her debt.
Source: The Star Tribune, "Unlicensed debt relief company wants to "help" a Minneapolis couple" Alejandra Matos, Oct. 09, 2013