Read the fine print

There are some companies that offer debt consolidation services that operate like this:

1. They get you to sign up to pay them a single payment each month instead of paying your creditors directly.
2. They contact your creditors and tell them to no longer contact you–to contact them instead.

3. They take your payment, but don’t pay the creditors until the creditors are about to just write off the loan as bad debt.

4. The contact the creditor and offer to settle your debt for a much lower amount than what you owed.

This is a good situation for the company, but a very bad situation for you because you still end up paying the entire amount. However the company only pays the creditor a small percentage of what you actually owed and they get to keep all of the extra money they make from you.

The bad part is that even though you’ll end up paying the entire amount over time, your credit will be marred by your original creditors because they didn’t receive full payment for what you owed. The company you are paying money to doesn’t care what your credit is…in fact they may not be particularly worried if you don’t pay them back in full. If they take a $10,000 debt, settle it with your creditors for $1,000 and you end up paying $5,000 ( plus interest), they still made a tremendous amount of money off you. But you are the one left with the bad credit rating.

To avoid problems like this make sure that any company you are looking at working with doesn’t have a bad reputation at the better business bureau. Make sure that they have been around long enough that if they are deceptive, you’ll be able to find out about it. And most importantly off all, read the fine print to make sure you understand what you are agreeing to.