Bad Debt Consolidation Can Be Quite Like The Fairytale.
Lower your interest rates. Cut your payments in half. We will save you money. You have heard all of this from bad debt consolidation companies.
These advertisements seem to be everywhere you look. Businesses who prey on those who are overwhelmed with debt.
They tell you that debt relief is a simply click away, or cut your payments or interest rates in half.
These are tempting promises that appeal to anyone who is drowning in debt. These people are willing to do whatever it takes to get out of it. Here is a list of things to consider before you contact one of these companies.
Avoid the three negative choices most people make.
First is the hard money loan. These companies lead you to believe that any can consolidate their debt. This is not true. If you are looking for a loan, you are probably already having trouble with a current loan, which has affected your credit score. What happens is that the consolidator offers you an easy loan but charges you an outrageous interest rate like 22 percent. So, your monthly payment is lower but less money is going towards your debt and more towards interest. In the end, you are paying more than you were initially.
Consolidation companies offer to get your payments and interest lowered and deal with your creditors if you make a small payment upfront.
For the most part, your monthly payment includes a fee that you will pay to them. It is about 10 percent of your payment. They make your payments and receive 10 to 15 percent back from your creditor.
Why should pay them when you can negotiate with your creditors for free?
To those in this situation, it probably sounds like a good idea, especially considering the scare tactics that these companies like to use. Talk to a couple of companies and see what they tell you. They all offer similar programs. If they tell you that it is going to take 32 years for you to pay off your debt and they can cut that down to 4 and a half years, look for a financial calculator on the internet.
When you find one, put the numbers in. There is a good chance that you are going to find out that you can pay it off faster not using these companies.
Debt consolidation companies also have a reputation for making late payments or missing them all together. What is purpose in using their service?
The final bad move is the balance transfer. They pull you in by offering low interest rates. The problem is that these interest rates are only for a set amount of time. So, in order to keep a low rate, you have to switch again. All this activity looks bad on your credit.
If you make this choice, contact your credit card companies yourself and have them closed out at your request. Make sure to that they mark the account as closed at customer’s request.
There are good choices you can make for paying off debt.
You can apply for a home equity loan. They offer low interest rates and the interest is tax deductible.
You can also refinance your home if you have equity built up. Pay off your debt with the money you receive.
Alternative options are negotiating, personal loans or refinancing your car.
Layla Vanderbilt is the webmaster for a leading website that offers for bad debt consolidation advice and guidance.