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As the economy gets worse, consumers are using credit cards and getting deeper in debt than ever before. To help out, presumably, many companies are starting to offer what they call debt consolidation programs. However, before using one of these services, be aware of your options. Some of these programs tend to cause even more trouble for the consumer.

New companies are sprouting up that say they can help you consolidate your debt. This might sound easy but in reality you could be buying even bigger problems before you’re done.

There are two ways to reduce your debt: one, by reducing your interest rates and two, by reducing your principle amount. Find a way to reduce your interest is always the best approach. It won’t affect your FICO score or hurt your credit rating in any way. It could even help if the reduction helps to free up more money each month with which you can begin to pay all your bills on time.

Some companies promise they will contact each of your creditors and negotiate “better deals”. They either try to get them to reduce your principle, or the interest. This type of process can cause a few problems for the borrower. First, you have no guarantee the company contacted anyone on your behalf. Second, you might be told you have a new payment structure when you don’t. You could start paying a lower amount because you were told to, but your creditor has no idea why you are now paying less and are behind on your payments.

If you do choose to work with a company that promises to renegotiate your payment terms, be certain you understand exactly what you’re committing to. What is it that they promise to do? How long will it take? Can you have final approval on any deal they are working on? In other words, are you giving them permission to act on your behalf and have final say in what happens? Not good!

If you are asked to sign a contract, really pay attention to it. Find out what they plan on doing in exchange for what kind of money they are asking for. If they want a one time payment up front, ask why. In these situations it’s all too easy to take your money and never do a thing for you.

In reality, they don’t pay anything for you. By the time the collection agencies are beating down your door, this debt consolidation company has disappeared with your money. Before deciding on paying someone to work on your behalf, try negotiating with each of your lenders on your own. Companies can’t do much better than you can! There is no reason a creditor is going to choose to work a deal with a third party company on your behalf.