Bills piling up, credit card balances left unpaid, medical and legal fees you can't afford. Does it sound familiar? These situations are more common than you may think and there is no easy solution to them. A true fix to these problems includes a good amount of sacrifice on your part in order to cut on your expenses and commit to a long period of debt repaying without incurring in new debt.



How Does a Debt Consolidation Agency Make Money

There are different ways for a debt consolidation agency to earn cash while consolidating your debt. All of them are legal and even fair since they are actually offering a service to both parties from which they can collect money. However, the amount of money they collect may be abusive so you need to be careful not to hire the services of some agency with high charges.

Also, there are some agencies which are not legit and ask you for money to make payments on your behalf but then they just keep the money, so make sure you track payments to your creditors and don't just leave it all to them.

What they Charge You

Some debt consolidation agencies charge a fee for their services or a percentage of the money they handle for you. They may charge a fixed fee for negotiating with your creditors and delivering payments to them on your behalf, or they can charge you a percentage that should never exceed 10% on the overall amount of money they handle to make payments.

What they Charge the Creditors

They can also charge the creditors a small amount for collecting the money for them thus making sure you don't miss payments or pay late. This is a very valuable service for your creditors and they show their gratitude by resigning a percentage of the money they receive from you. Those Debt Consolidation Agencies who claim to be non-profit and actually don't charge you any money for their services, make money this way.

Most Debt Consolidation agencies however, make money by combining these two methods, charging you an additional amount of money for negotiating and agreeing with your creditors a reduction on your debt and an extension on your payment schedules and also charging the creditors a small amount for handling their collections.

What you get in Return

In Exchange for the amount you pay, you'll get a debt reduction that can reach up to 60% with an extension on your repayment programs that will make your monthly payments even more affordable. All of these can be done by yourself but if you don't know how to negotiate with your creditors or don't feel comfortable doing so, contacting a debt consolidation agency might be the solution.