Coming to terms with the severity of your debt can cause uncertainty about your future. Overwhelming debt can distract you from your job, your family and your future goals.
Working with a debt consolidation company is one option you may have heard of or even considered. While this option may provide subtle relief, there are a significant number of risks as well.
You pay a premium
As with any company that provides a service, you will need to pay a debt consolidation company to help you. Additionally, according to the Consumer Financial Protection Bureau, many debt consolidation companies charge expensive fees.
They may encourage you to discontinue paying certain credit card bills. However, if you overlook the terms of your agreement with your lenders, you may incur late fees and other penalty charges. In some circumstances, debt relief companies may require you to establish a bank account dedicated to managing the payments of your debt. Using this account without the approval of the company could also put you at risk of penalty fees.
You receive no guarantees
Debt consolidation companies may assist you in downsizing your debt, but you receive no guarantees of a permanent settlement. In fact, specific lenders you owe may refuse to accept the terms and conditions of the debt relief company or may decline to work with them at all. In serious cases, some lenders may sue if you cannot find an amicable solution.
While some attempts may yield success, the risks of working with a debt relief agency often outweigh the benefits. Other options, such as bankruptcy, may provide you with a fresh start. Free from your debt, you can focus your effort on rebuilding your financial independence and planning for your future.