How Do Debt Consolidation Services Work?

By Wes Martin - Jul 18, 2009

Debt consolidation services provide programs that are developed to pay off your debt within a specified timeframe. When you consult with a debt consolidation company, they first begin by understanding your financial situation. They review all outstanding credit accounts as well as your income to determine the best plan for you need. A successful debt consolidation program can only be achieved if you’re able complete the program and pay off your debt. After a debt consolidation company determines your financial goals and what you can afford, they then start negotiating with your creditors on your behalf to come up with a repayment agreement. Once a debt consolidation company reaches an agreement with your creditors, you make one payment each month to your debt consolidation company, and they send payments to your creditors. Most debt consolidation services are between 1 and 5 years. Factors that determine the length of the program include the original balance of your accounts as well as what you can afford to pay.

What fees do debt consolidation companies fee charge?

Most debt consolidation companies will charge a service fee of around $25-$45/month. Even with a fee, the cost saving benefits of using a debt consolidation company is often greater than not consolidating. Debt consolidation is truly more of an art than an exact science. Often times, the reductions in monthly payments or interest rates that can be achieved are based on the skills and abilities of the debt consolidation company.

Is debt consolidation right for me?

When you have credit card debt, there is no clear and definite path to paying off your debt. For many people credit card use and balances rise more and more each month. Debt consolidation services reverse the cycle of rising balances by creating a structured way to pay off your debt often times at a savings.