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Debt Consolidation Companies: Worth It?

Credit Card Basics, Credit Cards
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debt consolidation

If you want to consolidate your debt, you may wonder whether to hire a debt consolidation company or to do it yourself. At NerdWallet, we recommend the DIY route. Want to know why? Read on!

What is debt consolidation?

Debt consolidation is turning multiple debts with multiple payments into one debt with one monthly payment, usually at better terms. This can be achieved in two ways — either you do it yourself (which I’ll discuss later) or you hire a debt consolidation company.

Debt consolidation companies have a reputation for being money-hungry and not having their indebted customers’ best interests at heart. Is this true? Let’s dig in and see.

Debt consolidation companies: Worth it or not?

Here’s the short answer: It’s not worth it to use a debt consolidation company. Anything they can do, you can do better and cheaper. Using a consolidation company may cost you in two ways:

  • The service fees are expensive. Why pay for something you can do for free? While there are tasks you may want to outsource, do-it-yourself debt consolidation takes little effort. It requires two steps: choosing a consolidation method (which are detailed below) and getting approved.

  • The interest accrued may be greater. Often times, a debt consolidation company may tempt you with one small monthly payment. Sounds great, but at what cost? The smaller your payment, the longer you’ll take to pay it off and the more interest you’ll accrue.

    » MORE: How to pay off debt

How can I consolidate my loans on my own?

We’ve written about multiple ways to consolidate your debt on your own, including:

To choose the right consolidation method for you, read the pros and cons of each. None of these methods requires hiring a consolidation professional.

Even so — any guidance on hiring a consolidation company?

If you do choose to hire a consolidation company, follow these basic guidelines:

  • Check any prospects with the Better Business Bureau (BBB). To find out if a particular debt consolidation company is decent, search for it in the BBB database for accreditation information and reviews.

  • Ask trusted family members or friends who have used a consolidation company. The best way to find out the details about any product or service is to ask people you know and trust who has used it. Ask them about their experience and get a recommendation.

  • Check to see if a prospective company is registered. Look into the Association of Independent Consumer Credit Counseling Agencies or the National Foundation of Credit Counseling to make sure your potential consolidation company is registered. Reputable companies will likely be registered to maintain credibility.

As you can see, it likely takes as long, if not longer, to find a reputable debt consolidation company as it does to consolidate on your own. If you choose to outsource this task, go for it, but understand the costs in time and money.

Bottom line: We’re big fans of DIY debt consolidation using whichever consolidation method makes the most sense for your situation. Using a debt consolidation company is expensive and may keep you in debt longer, and all of its services can be done on your own. Unless you absolutely don’t want to deal with consolidation, you should do it yourself.

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