If you have a lot of debt you have probably considered credit card debt consolidation companies. You have likely seen their commercials or heard about them from someone, about how they magically make your debt disappear. Well, before you start calling around, let’s go over a few facts about these debt consolidation companies so that you can make an informed, smart decision about whether or not you want to go that route to fix your credit, because it has some drawbacks that aren’t listed on the brochure.

First, what is a credit card debt consolidation company and what do they do?: Well, contrary to the advertising they are rarely nonprofit and you will have to pay a fee to use them. It usually works something like this…they negotiate payments with your creditors and take the first two payments intended for your creditors for themselves. Then, they inform your creditors that they will start sending payments in the third month and you pay them one amount and they distribute it. Usually most creditors will drop some fees or interest, but you may suffer for it.

See, one of the ways that these debt services get creditors to drop off the fees and interest is by telling them that you have no way to pay the debt otherwise. This may cause the creditors to report to the bureaus that you are missing payments when the debt services company takes the first two payments or even to report that you are working with a debt management company. This may cause you to have problems getting approved in the future because companies will not to work with someone who could not handle their debt the first time, and they will know that your past creditors missed out on some interest.

Another thing that you should know before you go into the office is that you can do real damage to your credit report by waking sleeping giants. What I mean by this, is that if you have big debts that are old and charged off and the debt consolidation company starts contacting them and making arrangements then they will report recent activity and your credit score will go down further. It’s a better idea to leave charged off debts that are a year old or older alone until you have the full amount of the debt in hand, and then to negotiate for complete removal from your credit report.

The best debt consolidation companies will not make you miss payments on anything that you are current on or anything that you are 120 days or less behind on. This does damage to your credit report worst than almost anything else. They will keep those payments current and paid even if they do charge you a fee for the first couple of months so that there is no further damage to your credit report. They are supposed to bring your score up by fixing debt problems not bring your score down further so let them know if you see them doing something like that.

These tough financial times make it often difficult to meet our financial obligations and loans or payments that we would have had no problem meeting a couple of years ago are now a strain on our finances because of a loss of job, higher interest rates or a reduction in pay. Nowadays, you often hear about debt consolidation, especially applying for a credit card to consolidate all of your debt into one low monthly payment. But what is a debt consolidation credit card and is it a good idea for your unique situation?

First of all, let’s cover what debt consolidation is. Say that you have three credit cards that you are paying on, as well as a mortgage, two car loans and a loan from Bob’s furniture store, for the living room and bedroom furniture that you purchased a year ago. Debt consolidation will allow you to turn all of these debts into one, with the exception of your mortgage, so that you only have one payment to worry about rather than six. You pay off each loan and then make payments on the money you borrowed to pay them off.

Debt consolidation for credit card debt takes the three credit cards that you are currently paying on, and pays them off, putting the balance on your new credit card. This new card may have a lower interest rate, or at the least a lower minimum payment so that you don’t have as much cash going out as you did before. Credit card debt consolidation is a common procedure and companies that offer this service are easy to find. If you have a high interest rate on your credit card debt consolidation may allow you to pay them off, and pay a much lower interest rate on the same principle.

Debt consolidation for credit cards may save you money both in the long run and in the short run. If you take credit cards A, B and C, which each have $1200 charged to them, and an interest rate of 15%, and you put them on credit card D, which only has an interest rate of 13.9%, then you will save quite a bit of money in the long run, as well as some money right away on the payments. Of course, if the interest rate on the new credit card is 19%, this may not be such a great deal even if the monthly payment is several hundred dollars lower than the combined payments for the first three cards.

You don’t have to use a consolidated credit card for just other credit card debt either. You can use it to pay off car loans or other types of store credit that have high interest rates. You can also get debt consolidation loans, which is simply money lent to pay off the rest of your debts, but not put on a credit card. One thing to keep in mind that unless you have excellent credit, you will likely not be able to get an unsecured credit card or loan over $15,000. If you have more than that amount of debt then you may have to improve your credit score, or get rid of some of the debt before debt consolidation will work for you.