You can sometimes consolidate multiple collection agency debts by getting one larger new loan or by accessing credit you already have to pay them off. You can also contact a credit consolidation agency that pays your individual creditors over time with money you send them each month.
The Good, the Bad and the Totally Fraudulent
It's likely that only the third path, debt consolidation through a debt management firm, will offer an available solution if you already have multiple accounts in collection. The good news is that debt consolidation can help you in a couple of different ways. It may reduce your monthly payments and free you from the aggravation of persistent calls from multiple collection agencies. It can also relieve the stress associated with these multiple delinquent debts by introducing a degree of certainty into the process.
The bad news is that sometimes debt consolidation doesn't help much at all, particularly if your credit has already taken a hit and your options are limited. A Bankrate article on debt delinquency notes that all credit counseling and credit management firms get the same terms from major lenders. If you've already negotiated some improvement in your interest rates and the amounts you owe, that may be the best you can do.
Then there's the danger of exposing yourself to totally fraudulent "debt counseling" and "debt management" scams. Some debtors have fallen into the hands of these fraudsters only to discover -- too late -- that money handed over to their debt managers never made it to the agencies collecting the debt. At best, doing business with one of these firms may be setting yourself up for unnecessary management fees and interest costs leading to more credit problems down the line.
Protect Against Fake Debt Counselors and Managers
Unfortunately, no government-compiled list exists of reputable debt consolidation companies. You'll have to do some investigating yourself. Here are some useful tips to help you get started:
• Be aware of the difference between debt consolidation, debt management and debt settlement. Debt management and debt settlement both involve you sending money to a company that uses it to negotiate lump sum payments or reduced interest charges, sometimes holding the money in its own account for months at a time before this is accomplished. Nolo notes that there are hundreds of fraudulent debt settlement companies out there, so it's very easy to become a victim.
• Check to see if your prospective company is listed with The Association of Independent Consumer Credit Counseling Agencies or The National Foundation of Credit Counseling. If not, it may not be reputable.
• Don't be talked into something other than debt consolidation. Aggressive pitches about "credit repair" schemes, "debt management," "debt settlement" or anything else related to your debt problems -- other than debt consolidation -- is a signal that you should move on to another company. High fees or upfront fees are also danger signs.
• Do a web search for complaints against every company you're considering. Many websites are devoted solely to airing consumer complaints. Not all complaints are valid, of course, but if consumers complain about the same company repeatedly on several websites, that's a bad sign. Every company garners some complaints, but bad operators usually accumulate many.