Credit Consolidation Services

Credit consolidation services offer a way out of debt for some consumers. Essentially, consolidation loans combine most or all outstanding debts into one monthly payment, providing additional convenience and, in some cases, allowing consumers to reduce their monthly expenses to a manageable level. Credit consolidation services work with consumers to determine which loans will best suit their financial needs. Consolidation loans can be a valuable financial tool for borrowers who have overextended themselves; however, if not properly used, these loans can actually worsen the problem they are intended to resolve.

In most cases credit consolidation services do not offer loans directly, but rather research various lenders who make consolidation loans and then make recommendations to their clients regarding which loan arrangements would be most beneficial for their specific situations. Some consolidation loans require that the borrower provide some collateral, while others do not; consumers can sometimes obtain lower interest rates by providing collateral for their loan.

Traditional consolidation loans offer lower interest rates than most credit cards, especially for consumers who have experienced credit difficulties in the past and who may be paying higher credit card interest as a result of those difficulties. Additionally, because consolidation loans are usually intended to be paid off fully within two years or more, they offer consumers the chance to manage their debt responsibly and to pay down their outstanding balances over a longer period of time. Since most consolidation loans feature fixed monthly payments, borrowers can also better plan their finances and budget without worrying about unexpected fees or charges.

Credit consolidation services are not for everyone. Seriously overextended consumers may not achieve sufficient financial relief to justify a consolidation loan, even with the most favorable terms available. Other consumers may not qualify for a consolidation loan due to past or current credit problems and missed payments. Getting the most from a consolidation loan requires a significant amount of financial discipline; most credit consolidation services provide budgeting advice and counseling to ensure that clients are ready to give up their previous bad habits and engage in responsible financial practices in the future. Consumers who consolidate their outstanding credit card and installment debts into a single loan should be careful not to incur any additional debt while paying off the consolidation loan, since this can leave the borrower in even worse financial shape. Debt consolidations simply don’t work when borrowers continue to overspend and incur additional debts; the same bad habits that created the problem in the first place are likely to make it even worse if not kept in check.

While many credit consolidation services are on the up-and-up, a number of disreputable firms have arisen in recent years. The Federal Trade Commission recommends that consumers avoid any credit counseling companies that require an upfront payment before any agreement is reached, and has cautioned against credit consolidation services that charge excessive fees for their services. Before turning over any financial information or money to a credit counseling service, it’s essential to research it with the Better Business Bureau to ensure it is a reputable and well-regarded firm.

Many major financial institutions provide consolidation loans to their customers. These loans may be tied to collateral, as in the case of home equity loans. Companies that offer credit consolidation services typically work with a wide range of lenders in order to provide the most favorable loans to their clients. Consumers are advised to research rates on loans directly, however, in order to ensure that they obtain the best interest rates and terms available for their consolidation loan arrangements.