Debt consolidation - No more debt in a year?

Some businesses offer to help people become debt-free in as little as one year. You have likely seen ads for businesses that promise get people out of debt quickly. Advertisements to get out of financial trouble in a year sound terrific - the businesses claim to have an office full of counselors with years of experience who can help you with your financial problems. They'll tell you how they can encourage your lenders to agree to accept much less than you actually owe - perhaps as little as half of your outstanding obligations.

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Becoming debt-free in a year would be amazing, would it not? Just pay a small monthly fee and your amount of debt will be cut in half! Being debt-free by chopping your debts in half does sound terrific, until you take a moment to ask yourself "Why would my lenders be eager to accept less than what I owe them?" The debt elimination programs are not particularly offered to help you. Debt elimination organizations seek only to get your cash.

How do these debt elimination companies work? To rapidly eliminate your financial obligations, a number of procedures are involved. The agency will ask for payment from you; fees will almost certainly include an one time application fee and there will more than likely be ongoing monthly fees, as well. The company will instruct you to send a monthly payment to them to cover your bills. The agency may or may not deduct your monthly fee to them from the amount you pay them each and every month for your bills. Some customers may assume that these agencies will negotiate your amount owed with your credit card companies and pay them from the monthly payments you send them.  In all probability, they will just sit on the money, and perhaps for quite a while. You meet with the agency and agree to pay some fees right away.
 

There potential problems to conducting business with debt elimination businesses. If you haven't been repaying your bills, it's going to wreck your credit score. Transacting with one of these advertisers may reduce your debt a bit, but you will find it very hard to get credit again anytime soon. If you do not pay your monthly debts for any reason, you are going to be marked as one who doesn't pay to the credit authorities. Creditors don't like not being paid. Cash owed that is disregarded by your financial institutions will be regarded by the IRS as taxable income, so you will be responsible for taxes on the amount of the bills that you didn't pay. Debt elimination looks as if it's like a smart idea until you come to find that your creditors may not be too eager to accept half of the money you owe them. Your debt elimination service is going to tell you to mail money to them, rather than your creditors and to ignore any contact from your lenders. After your bills have gone unpaid for a while, they will then negotiate with your creditors to persuade them to lower your debts. If you have been making monthly payments, even if you have only been sending in the minimum amount, your lenders or creditors are pleased. Credit card companies make a lot of money from debtors who pay no more than the required amounts. As long as you are making minimum payments, your creditors have no reason to negotiate with you.

There are better ways to get out of debt than by calling agencies that run ads on late night tv or radio. You might want to think about hunting for an established credit guidance agency by looking in the Phone book.