MInTheGap

We’ve all heard the ads—such and such company is offering to help you lower your debt costs, sometimes even affecting the principal, if you go through debt consolidation with their company.  They claim to know the inside of the credit business, and can negotiate deals.  Are these things for real?

First, the truth.  Credit companies want their money back.  You spent their money, and they are loaning it to you because they want it back—and they want to make profit off the interest.  If there wasn’t money to be made doing it, they wouldn’t be doing it in the first place.

Second, they know that many people are getting way over their head in debt—and sometimes people see bankruptcy as their only option.  That’s not good if you really want your money back.

So, are their plans to lower the amount you owe?  Certainly.  Just like when you go to cancel cable or some other service they will all of a sudden throw free or discount offers at you to try to get you to stay.  They reward you for leaving, rather than for staying—but that’s another post.

So, clearly there are programs, but they have to come with a price.  And that price is: trashing your credit rating.  If you had to negotiate your rate, that means that you weren’t good for the money that you borrowed.  And if you aren’t good for it, other lenders want to know.  After all, your credit rating is nothing but a score to see how good a chance a lender has at receiving their money back.

So, should you go with a debt consolidation service?  The answer is that you should probably figure out a debt snowball and pay off the debt yourself—or get on the phone and negotiate yourself.

Should you decide to go with a counseling service, do some research.  Check around for different places, and understand what the service will do going in.  Make sure to get everything in writing.  I don’t recommend Debt Consolidation.  I would recommend Dave Ramsey or some other form of getting out of debt tools.

But the goal is clear—get out of that debt and get yourself an emergency fund right away.