Debt consolidation services charge fees to cover the set up of your debt management plan (DMP) and the ongoing administration of that plan. But is it worth it to you to pay those fees?
In theory, the fees that you pay should be more than offset by the
savings that you realize through debt consolidation.
When working on your behalf, debt consolidation services will negotiate with your creditors to achieve concessions on your behalf that allow you to experience significant savings. These savings come in the following forms:
The biggest savings that debt consolidation companies offer you
usually come in the form of the interest payments saved by reducing
elimination period to five years. This is in contrast to the 15 to 20
years (or more) that it will take you if you are barely paying the
minimum balances on your high interest credit cards each month.
In fact, if you were to only pay the minimum balance each month (typically equal to 2% of the outstanding balance) on a $10,000 credit card balance at 18% interest, it would take you over 43 years to pay off that debt. And over those 43 years, you would pay $25,766 in interest charges.
Now, if you were able to reduce the interest rate to 10%, and with the help of a professionally prepared budget, stick to a $200 per month payment, you would rid yourself of that same credit card debt in just over 5 years. And your interest savings? $22,918
Fees vary from company to company, but the following fees are a good guideline to what you should expect to pay for debt consolidation.
Set-Up Fee: Some companies do not charge a set-up fee, but most do. You should expect to pay between $50 and $100 for this.
Monthly Maintenance Fee: In order to administer
account each month, reliable companies will
charge a small
monthly fee. Beware of companies that charge
high fees that can rob you of your ability to pay down your debts. A
monthly fee is in the $35 to $65 range, depending on your situation.
Sometimes the fee is a flat fee, other times it is based on the amount
of debt you have. Make sure you clarify this up front.
When searching for debt help, keep in mind not all debt consolidation services are alike. And that includes
both the services they offer, as well as the fees they charge. So make
sure that you shop around and find the best company to suit your
needs at a fair price.
A final word of caution. Many debt consolidation services are set up
as non-profit organizations. However, this does not mean that they are
free to the consumer. In fact, many charge more than the for-profit
companies. The lesson. Make sure you ask and make sure you get a clear