All About Debt Consolidation Loan Agencies

When times are tough, you need to know all your options. Here's your chance to find out what a debt consolidation agency is, and how it can help you get out of debt.

Poet Ogden Nash once said, "Some debts are fun when you are acquiring them, but none are fun when you set about retiring them." Indeed, the retirement of debt is one of life's greatest challenges. And while there are many folks out there offering assistance, the truth is that it's always up to you to get it done.

Reputable debt consolidation loan agencies offer support and assistance to individuals who can no longer make their minimum debt repayments comfortably. Unfortunately, there are also dishonest agencies out there that are happy to take advantage of your desperate situation. A brief overview of how debt consolidation loan agencies operate should prepare you to weed out the good guys from the bad.

What to expect

Debt consolidation loan agencies usually provide some or all of the following services:

• Credit counseling and budgeting help
• Debt reduction recommendations
• Lender negotiations
• Payment management
• Debt consolidation loans

To start, an agency counselor will interview you, and provide some options on how you can proceed. Before you contract for any service, be sure to understand the fees involved. Unfortunately, it's easy for an agency to charge you excessive fees, particularly if you decide to move forward with a payment management plan or a debt consolidation loan. Under either arrangement, agency fees can be built into your so-called debt repayments.

The fees may be stated as a flat amount, or quoted as a percentage of your debt balance. Don't agree to pay more than 10 percent of the amount of money the agency is handling for you. To ensure that you don't get over-charged, be diligent about shopping around and asking lots of questions. Keep in mind that many agencies also earn collection fees from your creditors.

Great expectations

You should expect to get some value in return for the fees you pay. The agency may be able to negotiate a favorable change in your debt terms, such as a reduced balance, lower interest rate, or extended repayment period. Be skeptical of an agency that promises "pennies on the dollar" results, with no ill effects on your credit score. Any changes to your debt terms are made at the discretion of your creditors, and such changes are likely to impact your credit score negatively, often significantly.

Alternatively, the agency may restructure your debt with a consolidation loan, so that it's easier for you to pay it off over time.

An ethical debt consolidation loan agency will be focused on easing-but not removing-the burden of your debt repayment. An ethical agency won't promise to make it all go away like a bad dream. If you truly need complete relief from your creditors, the only realistic option is bankruptcy.