When we are overwhelmed by too much credit card debt and feel that we are on the verge of drowning, several possibilities arise. Debt consolidation can be one of them but not the only one.

Debt consolidation is a process where a specialized firm negotiates with creditors to reduce the debt, interest rates, and establish a payment plan. However, such option is not necessarily for everyone.

Moreover, this route has some supervisors. Such is the case of the Center for Responsible Lending (CRL), a business advocacy organization based in Washington.

According to a recent report by the CRL, the promises of firms that consolidation will eliminate all debt in 36 months and will negotiate reductions of up to 50% are usually false.

According to spokeswoman Ellen Harnick: "The consolidation can be very risky because in many cases people are advised to stop paying the debt before an agreement with all creditors is carried out. The result is that the debts grow over the time, along with the fees generated for nonpayment".

Harnick also mentioned that people with excess debt problems would seek advice at first to explore all possible options. Among these options, consumers can directly negotiate new terms with their creditors, or go to a credit counseling organization.

And for people who face greater difficulties and can not pay off their debts, bankruptcy "is also a legal way to solve major economic problems," Ellen Harnick said.

The debt consolidation industry has grown considerably in the recent times. According to the report of the CRL, currently at least 500,000 Americans are enrolled in debt consolidation programs by about $15 billion.

"Debt consolidation is an option that can be very beneficial for consumers because it can reduce up to 50% of the total debt. The conclusions of the CRL are based on incorrect assumptions", Robert Linderman, vice president of the American Fair Credit Council (AFCC), said. AFCC is a body that brings together the firms that offer the best debt consolidation products.

Linderman is also legal advisor of Freedom Financial Network, which specializes in debt consolidation, based in San Mateo, California.

Who is the perfect candidate for consolidation?

"There is no perfect candidate. It all depends on the individual situation of each person. In fact in our firm declines nearly 90% of requests", says Linderman

As a rule, the AACC spokesman said, consolidation firms were seeking for people who meet five conditions:

  • Having stable employment

  • Who want to repay their debts

  • That can not comply with the minimum payment of debts

  • Have financial discipline

  • They face a difficult financial situation

  • And when selecting the company that will consolidate debt, is important for people to review the terms of the consolidation and make sure they are clear and understandable.