Companies or organizations offering debt consolidation services do NOT lend debtors money or pay off their bills. They may, however, offer to total all the money you owe and try to make arrangements with your creditors to pay them what they are owed in manageable monthly installments. Before pursing any debt consolidating service, consult your major creditors if they have, or are willing to make, alternate payment arrangements with the debt consolidation service you are considering.
A variety of debt consolidation services also claim to offer credit counseling services, and consumers need to be very cautious in order to not be victimized by a fraudulent company who offers something that it simply cannot do. You should be wary of any company that asks you for upfront fees before providing the actual service, or not being clear as to what the company will actually do in order to help you with your debt. Another thing that such a company should not claim to do and cannot do is erase or remove accurate though poor or negative information from your credit history.
The Federal Trade Commission targeted unscrupulous credit counseling companies that sold debt management services nationwide through unsolicited, pre-recorded messages left on home telephones, which falsely claimed that consumers were pre-approved for a program to consolidate their debt to a single monthly payment at a much lower interest rate. When consumers responded to the call, they were pressured to sign up for debt management services that many of the enrollees were not good candidates for. The consumers wound up losing hundreds of dollars in advance fees and not receiving any services to show for it.
The FTC advises that only time, a conscious effort, and a personal repayment plan can improve a credit report. According to the Director of the FTC's Bureau of Consumer Protection, "Debt management programs work best when they are tailored to consumers' particular circumstances."
Consumers should be wary of any debt consolidating service that uses high-pressure sales tactics, requests advanced fees for services before they are rendered, does not provide a clear description of the types of services that it offers, is hesitant about sending written correspondence and insists on only communicating electronically or over the phone, and does not provide you with the most basic information, such as the company's exact name and its physical location.