- Posted by NateKragness on October 21, 2009
If you've become overwhelmed with credit card debt, you have no doubt received countless pieces of mail from a plethora of different consolidation service firms offering their credit card debt repayment services to you. Whether they call themselves credit counseling services, debt repayment plans, consolidation loan firms, or loan modification companies, they all do essentially one of two things: they either work with your credit card companies to reduce the amount you owe (or at least the monthly payments), or they consolidate various high-interest loans into a single payment (at a still high, but hopefully less so, interest rate). There can be value in both approaches, so lets explore the pitfalls to watch out for in both instances.
First, before you obtain any professional services to lower your credit card payments or balances, make sure you exhaust all possible options yourself, personally. The rationale is simple: any time you obtain a service from a credit consolidation firm, you are paying them, whether you realize it or not. Credit card companies are willing to compensate these agencies if they think it will help them collect something from you, but in almost every instance, these are just savings going to the consolidation company, instead of into your pocket. If you can do the same work yourself, you may be able to realize more savings on your credit card debts. So, give your creditor a call and see if they will work with you. Simply asking for a reduction in your interest rate, or a reversal of fees, can very often result in money saved. Credit card companies have even been known to stop charging you penalties for an entire year, just for asking. It never hurts to ask, so always remember: credit card companies would rather have you re-pay what you owe than have to sell your debt off to a collection agency. They want to be reasonable, so give them the opportunity to work with you.
If, after exhausting all your options with the credit card companies yourself, you are still unable to get on top of your debt, you may want to work directly with a credit counseling agency. They have the advantage of working in the credit card consolidation field every day, all year long, so they may have more proficiency than you could ever expect to have, or know some tips and tricks to work with specific companies. They might even have some personal connections that can make things happen, which is always a benefit of an established firm or agency working on your behalf. Sometimes, you might hit a brick wall talking to the credit card company yourself, and then a debt management firm will come in and instantly reduce your payment significantly. This is where the value of these firms comes into play, and theres nothing wrong with taking advantage of them. Just remember that they are, somehow, being compensated for their work -- so use them as a last resort, but do take advantage of them when all else fails. They can certainly save you money, and saving some money (while their agency gets paid) is certainly superior to not saving any money at all.
Finally, you may want to take advantage of a debt consolidation loan. There are two types of loans: secured and unsecured. A secured loan can be taken against your house, your car, or any other significant asset you have. Companies are willing to extend a lower interest rate to you on a secured loan, because if you do default, they have a claim to your property. This mitigates their risk, and they are thus able to offer lower terms to you. Obviously this is the preferred method, as long as you are confident in your ability to repay the loan. It could be the difference between a 12% secured loan, and a 24% unsecured loan. Another option is to talk directly to your bank: they do offer personal loans at fairly reasonable rates (certainly less than you're paying on your credit card), but usually they are only for a few thousand dollars, at the most. This might help you out, but if you're very heavily into debt, it probably won't be an ideal solution for you. But again, this is something you can do on your own, so check with the bank first, before engaging a debt consolidation firm and asking for help.
No matter what direction you decide to take, its important to recognize the reason that you are in debt in the first place. If you are a habitual shopper, using your credit cards to live above your means, simply consolidating all your debts won't help the underlying cause. You need to address the habits that have placed you in the situation you are in today, and focus on improving yourself. Otherwise, you will fall back into your old ways, and continue to slip further and further into debt. The most important decision you can make is to take personal responsibility for your situation, and work towards a solution that will get you back on track. Whether you decide to employ a credit counseling agency, or take advantage of a debt consolidation loan to eliminate your credit cards, or simply work directly with the companies yourself to eliminate your high interest debts, you need to sincerely remain diligent and focused on your goal to get out of debt.
As a final word, when working with creditors or debt consolidation agencies, keep in mind that they do want to help you. No matter how frustrated you get, taking out your anger on the person at the other end of the phone will never improve your situation, and could likely ensure that they don't go out of their way to help you. Be curteous and professional, but firmly work towards a solution that will help both you and the credit card company. Remember, both sides want to reach an equitable resolution -- you need something fair and manageable that works for you, and they want to get their money. Certainly, some common ground exists between both parties, and remaining level-headed will ensure that you receive the best terms available.
Getting out of debt is going to be hard work, no matter how you look at it, but by using these techniques, you can ensure that you get there as quickly as possible. Debt consolidation firms may provide additional resources for you, but always try working directly with your creditors first; you might be surprised just how interested your credit card companies may be to work with you towards a payment plan that ensures they (eventually) get what they're owed.