If you think about a debt consolidation or debt settlement service to help you out of debt faster and save money on your monthly student loan reduction payments, make sure you do your homework before choosing a company. There are definitely shams and scams there.

First let me say that debt consolidation is * not * the same as debt settlement / negotiation, which most people do not realize.

Debt settlement companies charge hundreds of dollars as the first "processing fee" to set up your account, plus a monthly service fee. The fees vary depending on the company and the amount of your debts.

Such companies take money every month, but do not make monthly payments to your creditors! Instead they put it in a trust account, negotiate your debts with your creditors, then a severance payment if it can pay full.

That enough in your account to a creditor in * years * depending on the amount of debt you have with each individual creditor. In the meantime, you can be sued by your creditors and your wages can be seized! (Or just do not make payments to your creditors. You will end up helping in the same spot without paying someone you get there!)

Settlement companies do not ask your creditors on all interest, overdue fines and overlimit fees stop of payouts. That is, while the negotiations are still ongoing, your bills will continue to grow! So if you are sued and have brought a verdict against you, you will owe more money than before!

And shoddy companies, which are a lot, do not tell you * all * these forward. I call it "getting permission by omission" because they do not say just how their program works * before * you sign an agreement with them. Or after, for that matter. But if you ask the right questions, eventually you'll figure it out. (Or, if the shit hits the fan. What comes first.)

Let I give you an example of how debt settlement works.

Let 's say you have $ 20,000 in unsecured credit card debt. You owe $ 10,000 to a credit card company, $ 6,000 to $ 4,000 and another one third. You agree to a 5-year plan where you pay $ 250 per month to the settlement enterprise. (After all, is $ 250 per month for 60 months only $ 15,000, so you save $ 5,000 and you are free from debt in 5 years, right?)

The processing fee will cost $ 750. Your first 3 monthly payments go towards that and nothing put in your trust account until your 4th month.

The settlement company keeps $ 50 of your $ 250 payment each month for the service fee. This means, that is $ 200 per month claim your trust account.

Most debt settlement companies can be to your debt for about 50% of what you owe negotiate recorded. So we use the lowest credit card debt than you example.

If owe $ 4,000 and your creditor agrees to $ 2,000 as payment accept in full, it takes 10 months at $ 200 per month to have enough to pay into your escrow account from only remind you that credit card.

But, your first 3 payments to the settlement company only paid the processing fee. This means your first credit card settlement is 14 months * after * you started sending them money.

So what's the problem? It's easy. Your creditors do not agree with half of your actual debt unless, or to accept, it may be paid in full. Otherwise, you are expected to afford your monthly payments.

Since you do not have over $ 2,000 in your trust account, and you're not going until more than a year after you stopped paying your creditor directly, they are likely to take to court and request that your wages, long before garnished will have that $ 2,000 up.

And what is built with your other creditors? Well, they are still waiting even longer to put their money out of the settlement. The $ 6,000 debt will take 15 * more * months to pay off, assuming your creditor waits and agrees to 50%. And the $ 10,000 bill? You have the math.

On the other hand, if you sign up for a 3-year plan with the management company would be paying off your debt sooner. But the question is, will your creditors wait that long? Probably not.

The facts are, you can negotiate with your creditors themselves. Most will agree to accept a smaller monthly payment from you and stop all interest and fees incurred. And, of course, you will be thousands of dollars in fees to a settlement, you company.

Before to save for a service, make sure to check out the company thoroughly. And do not let the words "non-profit" does not deceive. Many debt settlement companies claim to non-profit.

Going back to the example above, if you pay them $ 15,000 over a five-year framework, and they settle your debts for half what you owe, they make $ 5,000 from you. I'd call that a win, especially since they might not really help you in any way.

Most company, you can terminate your account and receive a refund of what you paid, minus the non-refundable processing fee and monthly fees. If you feel you have deceived about their program, do not hesitate to assert that until the cows come home. Rent a complaint with the Better Business Bureau or a lawyer if you get nowhere.

You can visit the Better Business Bureau website (http://www.bbb.org) and reports on hundreds of companies feel. Have a short list of companies who have bad reputation with the BBB: line break line break line break line break National Consumer Debt Council, LLC - Irvine, CA (AKA NCDC, United Consumer Law Group) line break line break line break line break financial rescue services - Burbank, CA

Debt Legal Services - Anaheim, CA

American Debt Relief - Los Angeles , CA (AKA AM Debt, American Debt Relief, debt relief)

Please be very careful when choosing a debt help company and ask many questions before they are nowhere. If you can, avoid them your questions, run fast and run far. There are reputable companies out there, keep looking that way until you find one.