It’s perhaps an unfortunate sign of the times that it seems you can’t go anywhere without seeing a billboard or poster promoting the services of a debt consolidator promising to “Cut your debt in half!”
Hopefully, you’re financially secure enough that you can ignore those signs and focus on the next ad vying for your attention (“Lose 50 pounds in one week!!!”). But before you move on, don’t smugly assume that debt reduction and credit counselling is only something for “the poor.” As Henrietta Ross, executive director of the Ontario Association of Credit Counselling Services says, poor financial planning can lead to a debt-management issue regardless of your income level. “You can have some very high-income individuals in poor financial shape. It’s not the amount of money you earn that determines your financial shape but, rather, what you do with that money and how manage it.”
Many of the non-profit credit counselling agencies across the country are actually one part of a family services agency since the root causes of spiralling debt are often attributed to some other crisis like addiction, major health issues, or unemployment.
So, how do you decide if you need to speak with someone about debt consolidation? Ask yourself these three questions:
- Are you struggling to just meet the minimum monthly payments on your bills?
- Have you stopped paying an outstanding bill (or bills) because you simply can’t come up with the money to pay it?
- Does your debt-level lead to stressful days and sleepless nights?
Answer anything but an immediate and heart-felt no to any of the above, and it may be worth investigating a consolidator to reduce your debt (and your stress). The main benefit is that a consolidator will negotiate reduced interest rates – and possibly even waive some of the penalties and fees you’ve been charged and get you on a path to start paying off your debt. (The credit companies do this because, in some cases, the consolidated loan is secured against a home, car, or other asset, but even without any collateral, they’d rather get some of the money they’re owed back slowly, than having to write that debt off if you are forced to file for bankruptcy.)
Typically, you make one monthly payment to the consolidator, and they distribute the money out to the various creditors you owe. Once you’ve started making those regular payments – small as they may be – you’ll stop getting the harassing calls from collection agencies, and start rebuilding your credit rating. You’ll also have professional advice and a plan on how to better use your reestablished credit once your debts are paid off. But keep in mind, this is a slow process. It typically takes three to five years, and often longer, to pay off all your built-up debts once you enroll in a plan.
And, as with any major financial decision in your life, you should shop around before signing on the dotted line. Depending on their relationships with lenders, some may be able to negotiate better rates than others. And administrative fees can also vary, in some cases a one-time initiation fee (typically starting at about $100) may apply, in others a monthly charge based on a percentage of your overall debt.
It’s also worth noting that some consolidators are not-for-profit agencies and given that status – and the government and corporate financial support they receive – can offer lower admin fees or even eliminate them altogether.