Should I use a debt-relief company to get me out of hock?

Photo by Baptiste Franchina

Photo by Baptiste Franchina

Each week or so, our Dear Penny column investigates the answers to reader questions about saving money in Brooklyn. This week’s entry is written by Brokelyn associate editor Jonathan Berk.

If you ever listen to commercial radio (which you should, thanks to the newish 101.9 WRXP), you might hear a constant loop of ads from debt consolidators—companies like CareOne and DebtShield that claim to roll all of your bills into one monthly payment. If you’re awash in late fees and collection notices, you might be tempted by their promises to slash interest rates, lower your monthly payouts and get you debt-free in mere months. But are these offers a scam?

The answer: Some debt consolidators are legit, and others aren’t. And the practice is fraught with hidden fees, high interest rates on seemingly small payments (so you pay more in the end) and even fly-by-night consolidators who disappear with your money and social security number and leave your credit in shambles.

Before you pick up that phone to any of these companies, read these articles first. On MSN Money—a great personal-finance resource—the Insider’s Guide to Debt Consolidation, written by Liz Pulliam Weston, warns that “debt consolidation may not get you out of debt any faster, save you any money or reduce your payments,” and “you might be better off consolidating your debt on your own or from a different kind of lender.”

Your 3 Worst Debt Consolidation Moves by MP Dunleavey covers the debt-consolidation snafus that could leave you in a worse situation than before: You pay more in interest than you should, you pay for services you shouldn’t, your repayment takes years longer than it should or your consolidator makes your payments late, further damaging your credit score.

Like Weston, Dunleavey recommends the nonprofit National Foundation for Credit Counseling, which certifies credit counselors who provide free and low-cost advice on debt reduction, bankruptcy, foreclosure prevention and even the viability of a home purchase. But be careful in choosing a counselor, and be sure to keep in mind these 10 Questions to Ask a Credit Counselor from Even if you’re just being “counseled,” it’s still your money at stake.

However you choose to get out of your debt-related quandary, here’s a scam that changed one woman’s life. Read, beware and heed those monthly statements.

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