Here's what you need to know about consolidating accounts through an agency. Instead, they have preset arrangements with most financial institutions, many of which lower interest rates and fees, so more of your payment goes toward the balance rather than finance charges. With something as precious as your finances, be exceedingly careful about who you work with.
However, if you just happen to have accounts with creditors that don't offer any concessions, that benefit is reduced. Look for a nonprofit credit counseling organization that belongs to either the National Foundation for Credit Counseling (NFCC) or the Financial Counseling Association of America (FCAA).They ensure member agencies pass rigorous standards set forth by the Council on Accreditation or another approved third party, and that their counselors pass a comprehensive certification program. Financial institutions don't give preferential treatment to any one organization, nonprofit or otherwise.Even if they are members of such organizations, though, be picky. So while the agencies and employees vary, the plans are all structured the same way: Your counselor determines how much it will take to pay your creditors in full in three to five years.The agency should be organized, send payments and statements on time and offer strong consumer education and support. The payment is usually around 2.5 percent of the total debt, though in hardship situations, there is some wiggle room. Why consolidate bills if you can't pay for basic expenses or if there are better alternatives?You can stop the plan at any time, and you can also pay more -- and get out of debt faster -- when you have extra funds. You wouldn't, which is the reason consolidation begins with a counseling appointment where your entire financial situation is assessed.And third, you need to have just enough money for essential expenses, some savings and your debt. While you're on the plan, your payment remains constant.
If you have too much cash left over, you're better off managing the accounts on your own. You never have to wonder how much you should be paying each month, as it will be the same amount until all creditors are satisfied.
When one account is satisfied, the others receive a larger portion of your payment, which speeds up the repayment process. Those you owe will still be sending you account statements, which you'll have to monitor and send in.
If you have enough cash left over after subtracting expenses from income, consolidation will be presented along with other options. How do you know if debt consolidation would work in your favor?
When a counselor is knowledgeable and compassionate, these sessions can be enlightening and motivating. If he or she acts bored, judgmental or pushy, request a different counselor. First, the bulk of your balances should be in unsecured debts, such as credit and charge cards, personal loans and, sometimes, collection accounts.
If most of your liabilities include other types (tax debt, unpaid child support or old parking tickets, for instance), these plans won't help.
Second, you should be confident that you can pay not just for a month or two, but for years.