I need help paying off all my credit card debts and am considering a debt consolidation program. What are the pros and cons?
When you enter a debt consolidation program, you essentially assign a third party - debt counseling agencies such as Myvesta.org -- to act as your debt agent with creditors. That means instead of calling you, your creditors call your agent. And together, agent and creditors work out a new repayment and fee schedule for you that may include lower monthly minimum payments. Creditors also may be willing to mark your account as paid on time once you pay the new minimums for three or four months in a row.
None of your debt is forgiven, however. You just extend the period of repaying it. Your participation in the debt consolidation program may appear on your credit file if one of your creditors chooses to report it, which they have the right to do. But even if they do, your participation will not count against you in terms of your FICO credit score, the number most widely used by lenders to assess your creditworthiness.
If, however, you choose to consolidate your debt on your own, by moving all your balances to one credit card with the lowest rate and then closing out your other accounts, there's a good chance your FICO score may be lowered if your ratio of debt to credit available gets worse.
If you're unsure whether you might benefit from a debt consolidation program, here are three warning signs that signal debt trouble: You're unable to make all your minimum required payments; you're taking cash advances from one credit card to pay off another; or you're beginning to use your credit card to pay for things that you used to pay for in cash.
For more on assessing your debt situation, check out Money 101: Controlling Debt.