How Debt Reduction Services Work
A company that specializes in debt reduction services is usually founded under the notion that Americans do not know how to do things for themselves and would prefer to pay someone else to do it. Everything done by a debt reduction services company you can do yourself and maybe even save something for yourself for the future.
Extra Charges
A debt reduction services company charges you for their service and what they do is usually consolidate your debt into one payment and then add in their service charge and you pay that every month. They way they can do that is because a debt reduction services company will get your monthly payments on your debt lowered and they take a percentage of what they have saved you and roll that back in as a payment to them. Guess what, you can do the same thing yourself.
There are thousands of financial institutions and lenders out there and no one debt reduction services have relationships with all of the creditors regardless of what they tell you. You know your creditor better than a debt reduction services company and you can pick up the phone and call your creditor just as easily as the debt reduction services company can.
The difference is that you will be negotiating with your creditor to get the best deal while the debt reduction services representative will only be interested in getting you the lowest monthly payment possible. The two are not the same thing. A great monthly payment could come at an extra cost that you may not be interested in like a huge hit to your credit rating. You may be able to work with your creditor, take a deal that lowers you payments, but also prevent and real damage from being done to your credit. The credit counselor is not negotiating with your interests in mind; they are negotiating with their fee in mind.
Is it a Scam?
Debt reduction services are not always a scam; they offer a service that some people just cannot do and then they charge for it. But they charge every month for a service they only perform one time so it adds up after a while. They are usually very helpful people but they can do a lot of damage to your future if you do not monitor what is going on. So be careful and always ask a lot of questions.
If you have a bank or other financial institution that you do regular business with you may want to ask them about their debt reduction services as many banks and credit unions now offer this service. They may be able to help you out and actually improve your credit rating - so always ask them first.
