by Moe Zilla

Created on: July 08, 2010   Last Updated: August 12, 2010

I've been in this situation. There's thousands of dollars of piled-up debt, and every day it hangs over your head. But I've discovered one of the best strategies for saving money and reducing your stress levels: a debt consolidation service. For the longest time I was skeptical. (My girlfriend at the time was making a single lump-sum payment each month, and it was distributed to her various creditors by a debt consolidation agency.) She'd pointed out that otherwise she'd have to write nine different checks, month after month, constantly being reminded of the debt that was hanging over her head. And if she missed writing one of those nine checks, there could be additional fees and penalties, which the debt consolidation service could make sure she'd avoid.

But there's an even better way that a debt consolidation service can lower your stress: by actually lowering the amount of money that you owe! They can negotiate with credit card companies and the other institutions where you owe money, trying to get them to lower the dollar amount of your current outstanding balance. It sounds like a dream come true, but there's a nasty catch that comes with it. This is one of those actions which is guaranteed to damage your credit rating. If you pay off the full amount of your debt, even if it take a long time, the credit rating agencies will upgrade you as a good credit risk. Credit checks are often performed when applying for a new apartment, financing a new car or furniture purchase, and sometimes even when applying for certain jobs. But if you accept a negotiated reduction of your debt amount - you're also accepting a reduction of your future credit rating. 

If you're trying to reduce your total debt levels, one of the other important steps you can take is to check on your interest rates. Anyone who's had credit card debt has probably been flooded with offers from other credit card companies who want to be the ones who collecting your extra interest payments. If you sort through the offers carefully, it's often possible to find your way to a better offer. For example, there's usually a fee to transfer a balance to another credit card, but you can often then get a much lower interest rate, and sometimes for a surprisingly long period of time. This can buy you more time to pay off the debt that you have, letting you ride out the bad times until your finances pick up.

Just remember that the debt doesn't go away. When the 0% introductory period ends, they're still expecting you to pay off the balance!

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