If you are like thousands of other Americans right now you are going through a financial nightmare.
The phone is ringing off the hook with collectors and your mailbox is stuffed with threatening letters.
You've never been in this condition before have you? You're desperate for a way out but you have limited funds and there just isn't any way you can make the minimum payments on the credit cards.
Then you see an ad for debt consolidation and debt consolidation loans and it sounds almost too good to be true.
Before you sign a contract with any of those companies, check out these seven important considerations.
1.
Know Who You Owe Locate the last statement that you received from all your credit card companies and any other unsecured debts you have.
On a spreadsheet list each account by name, number, total balance, total past due, past due fees and other charges, interest rate and minimum payment.
This exercise will tell you just how deep in debt you are in.
It's also information that a debt consolidation company will want if you go that route.
2.
Know What You Can Pay The next step takes some discipline and that's coming up with a no BS budget.
You need to know what it costs you to live and that number has to be real.
Track down your utilities, phone, internet, rent or mortgage, car payment, insurance, gas and groceries and make sure the numbers are accurate not guesses.
Subtract the total from your monthly income and now you know how much you can pay to lower debt.
3.
Know How Debt Consolidation Works A debt consolidation firm basically tells you to stop paying your credit card bills and start paying the debt consolidation company.
They will contact your creditors and tell them they represent you and that they would like to negotiate a settlement.
In the meantime, your payment to the firm is going into an escrow account that will be used to pay settlements to the credit cards.
The whole process takes about 36 months.
4.
Know The Down Side Of Debt Consolidation Your credit score will of course be trashed but it's probably not great right now and at least you didn't have to file for bankruptcy.
However, there is no guarantee that the credit card companies will settle.
There's no guarantee that they won't sue you while you're in this program.
5.
Know The Debt Consolidation Company This is a rapidly growing industry with new companies sprouting up overnight.
Not all debt consolidation companies are created equal.
There are good ones and there are out and out crooks.
Do not sign with any company until you have checked with the local Better Business Bureau and or your state's Attorney General's office.
6.
Know The Terms Of The Deal Fees for these companies can be high and sometimes there is an up front cost as well.
Make sure you fully understand the terms of your contract.
If the representative of the company you are talking too is evasive or not fully answering your questions about fees, don't do business.
There are reputable consolidation firms that are more than happy to spell out the fees.
7.
Stay In Touch This is not a fire and forget kind of program.
You have to stay up particularly on your escrow account and the fees that the company is taking.
Ideally they will be able to give you monthly statements on the account including who, if anybody, they have settled with.
Debt consolidation is one kind of solution to your financial problems, just make sure you know what you're getting into.