If you can't use any of the methods to slowly reduce your debt until you get rid of it, you might be thinking about debt consolidation.  When you are trying to avoid bankruptcy, this may be your only option, so what kind of option is it?

Consolidate debt

Debt consolidation companies are organizations that designed to help you out with your tight spot, or so they would like to make you believe. In general, these companies offer you a big loan, to cover your existing debt, at a lower interest rate and spread out payments. This is a business like any other, so you are probably wondering what could be the financial motivation of debt consolidation companies.

The price of debt consolidation

The truth is that eventually you'll probably pay more for the loan you get from the consolidation company then for the original debt. Even though you get a lower interest rate, you'll probably end up paying the difference in the company's high fees. These companies take over your debt problems and make it seem as though everything is under control and the weight of worry is off your shoulders. You stop getting the daily calls from your creditors, and probably feel more relaxed. In fact, they are charging you high sums of money for their service. So if you just don't have the energy to deal with your creditors – find it! In most cases, consolidation companies should be your last resort, depending on the gravity of your situation and the repute of the company.    In the best case scenario, you wind up with a good company which charges you a bit more than you would pay for your debts if you had handled them yourself, your gain is leaving the messy business of negotiation with creditors in the consolidation company's hands. You will pay for this advantage.

In worse case scenario, you may find yourself with less money in your pocket and with no financial relief! There have been reports of companies disappearing, not dealing with your creditors as promised and ignoring your phone calls, advising you to put your assets in unnecessary risk, surprise charges and the list just goes on.

Contact your local CCCS to find out about the reliability of the company you are considering, if you must. Self help may be the best option for dealing with debts. But if you really are in need of such company's services, make sure you get all the information you can on them. It may be stressful to be a young parent in debt, but its worse to be a young parent subjected to a scam. If possible try to solve your problems yourself using the help of non-profit credit counseling, which in contrast, is actually there to help you get rid of your debt.

So be cautious with promises that seem too good to be true, it's a lesson worth learning from second hand experience.

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