Let's face it, the average consumer does not like being in debt. That would certainly explain why there are so many debt reduction companies out there. While they claim to help you lower the amount you owe, you should know that there are different types of services. Knowing these differences will help you choose the company that is best for your situation.

Debt settlement companies deal directly with your creditors. What they will do is negotiate the amount you owe. The funny thing is that the further behind you are in making payments, the less your creditors are likely to take. That doesn't mean you should purposely withhold payments just so you can get a better deal, though, as this will have a negative impact on your credit score.

What would happen if you declared bankruptcy? Then the people you owe money to would get nothing, or almost nothing (depending on which type of bankruptcy you file). So, they figure it's in their best interest to take less than you owe, as opposed to getting nothing at all. It should also be noted that some settlements can reflect poorly on your credit report, but at least you will be out of debt.

You should understand how the debt settlement company will collect their fee before you hire them. Some charge an up front fee, while some will charge you a percentage of how much money they end up saving you. Both can work just fine, but the latter will have a stronger motivation to save you more, as it will be reflected in the amount they earn.

The next kind of debt reduction companies are debt counselors. Their main purpose is not only to lower your debt, but to also educate in the process. The idea is that by educating people, they will avoid going into debt in the future. They will help you make a budget, may help negotiate with creditors on your behalf, and offer financial training materials. Some debt counseling companies are non-profit, while others are not. However, almost all of them will charge a fee, but don't worry as it is normally nominal, plus they will figure their payment into your budget so you won't really notice it.

Finally we have the debt consolidation companies. They will basically take all of your debt and combine it into one, larger loan. While that may sound like it would be a huge payment, it isn't. This is because they will find a loan that is at a lower rate than the average you are paying now. Plus, by having one payment, it will be easier to manage; as opposed to trying to keep track of several payments, you only need to make one.

Regardless of which debt reduction companies you choose, be sure to look into their credentials and qualifications. Ask several questions about what they do and how they will handle your money. While most companies work hard to help you get out of debt, there are a few that don't, and it's always a good idea to do a bit of checking before handing over your money to them.