Debt can be hard to manage, and even harder to get out of, especially if you’re dealing with multiple creditors. You may find yourself searching for an easier way to manage debt and pay it off faster, and if you’ve gone down this road, it’s likely you’ve come across debt consolidation companies who make promises to help you accomplish both. At first glance, while working with a debt consolidation company might seem like a great idea, there’s often more than meets the eye. Here’s some information to consider before choosing to work with a debt consolidation company to manage your debt.
How They Work
While each debt consolidation company will have its own policies and procedures, the process generally works the same1. First you will gather information on all your creditors and the balances owed on each account. You will also need to give each creditor permission to speak to the debt consolidation company. Next, the debt consolidation company will contact each of your creditors to work out a settlement agreement and payment plan on your behalf. After speaking with each of your creditors, the debt consolidation company will present you with a payment plan, usually with monthly payments. You will make these payments directly to the debt consolidation company who will disperse the payments as needed to each of your creditors until all debts have been satisfied according to the agreements made with each creditor.
While the above scenario sounds like it will make paying your debts a breeze, there’s other realities you may want to consider. First, your creditors do not have to work with the debt consolidation company or offer them any payment plans or settlements. Meaning you would still have to manage these accounts separately as you already were and work out any special payment plans on your own. However, even if the creditor is willing to work out a settlement with the debt consolidation company there may still be negative consequences2. Oftentimes, if you pay a settlement, it will be reported as such on your credit report, rather than showing the balance as paid in full which could hurt your score. Some settlement deficiencies (the “left over” amounts you did not have to pay) may be reported to the IRS as income and you can be taxed on that amount. Additionally, if you opt to work with a debt consolidation company your creditors may choose not to do business with you again in the future. In this case, this will not only damage your relationship with creditors with whom you’ve built rapport, but it could negatively affect your future borrowing power and put you in a bind the next time you need credit.
One last thing to consider before choosing to work with a debt consolidation company is their cost. 3While debt consolidation companies usually advertise themselves as an option to save you money this may not be the case. The payment plans a debt consolidation company presents to you will also include the fees they charge for their services. Though the company deserves compensation for their services, you may end up paying the same amount, if not more, than you would have had you not hired a debt consolidation company. When considering an offer from a debt consolidation company be sure to calculate how much you owe your creditors and compare it to the total amount you’ll end up paying the debt consolidation company at the end of your agreement to be sure it benefits you.
If you’re reconsidering using a debt consolidation company or are interested in the alternative, we’re here to help. You can accomplish many of the things a debt consolidation company will do on your own and may also be able to keep your good standing as a customer in the process. Many creditors have existing programs or payment options available to help their customers or may offer settlements on outstanding balances. Contact each of your creditors, explain your situation, and ask what options they have for you. It’s usually mutually beneficial for the creditor to try to work out a payment plan as they likely want to keep you out of default and retain you as a customer.
However, we also acknowledge that handling multiple creditors is difficult, especially if you’re working out a special payment plan with each of them. There are a few things you can do to help make this a bit easier. One option is to keep a calendar or planner where you can write down when a payment is due for each creditor and the amount due. Another option that would provide more detail is to keep a spreadsheet. You can create a different sheet for each creditor, keep a list of each payment and when it’s due, and keep a running list of your balance so you can see how close you are to paying off the balance.
If you’re struggling to make your Cash Central payment or are worried you will be unable to make your payment on its due date, we have options available. If your payment has not come due yet, you may be able to get a courtesy move, refinance, an extended payment plan (EPP), or a variable payment plan (VPP). Options may vary depending on the state you live in or the type of loan you have. Please see our Frequently Asked Questions or give us a call at 1-800-460-4305 for more information and to discuss your options. Please remember that if you cannot repay your loan in full on its due date, you should contact us at least one banking business day* before your loan is due, prior to 6:45 PM EST. If your payment is past due and in collections, please give us a call at 1-844-259-3050 as soon as possible. We have payment options available.
*Monday-Friday, excluding federal holidays and any delays from your bank.
1Push, Amanda, Denicola, Louis. (2023, Jan 31). Retrieved from: https://www.lendingtree.com/debt-consolidation/debt-consolidation-programs/
2Christensen, Todd. (2022, Jun 18). Retrieved from: https://www.moneyfit.org/truth-about-debt-settlement/
3Egan, John and Strohm, Mitch. (2021, Jun 10). Retrieved from: https://www.forbes.com/advisor/debt-relief/debt-settlement-how-it-works-and-risks/