The Dangers of Debt Consolidation

Some debt consolidation companies use tactics that are not legal, including misrepresentation.

Debt consolidation loans operate on the basis that you will borrow enough money to pay off all your debt at once, and leave you with one single loan payment.

But, it’s not quite that simple.

 

WHAT IS THE REAL TRUTH ABOUT DEBT CONSOLIDATION COMPANIES?

1. The truth is that these debt angels build in a fee, THEIR fee, as part of your new monthly payment, But, you may be so desperate and they may be so vague when you talk to them that this gets missed in the discussion.

 The fee can be as much as 10% of the payment. (For example, $50 on a $500 monthly payment) or could be up to 15% of your monthly payment ($75 on a $500 monthly payment!)

2. This is what can happen:

They take your payment, pass it on to your creditor (whoever you may owe money to) and it is a win-win, they then can BOTH make money from you, the debt consolidation service AND your creditor.

3. Some of the debt consolidation plans take anywhere from 15 to 30 years to completely repay.

If you know you aren’t disciplined enough to deal with the causes of your spending, you are probably better off not consolidating your debt.

At the end of the day you need to realize that there is nothing that is going to be a quick fix in life.

A debt consolidation loan, while it makes logical sense, is only going to be a temporary band-aid solution if you don’t get your spending under control.

And it will not only take a long time, it can cost you a lot. (Remember they are in business to make money).

It’s fair to say that most people who already have built up large debt are those who can’t control their spending in the first place, so it’s highly likely they will fail even after taking the debt consolidation route.

It is only through changing your spending habits that you really benefit from a debt consolidation loan anyway.

Why not learn through managing your current debt mess, rather than learn through a debt consolidation loan only to find that the mess has now gotten bigger?

If you are ready to get your debt under control, you may want to consider a certified debt counselor.

Getting professional help in managing your debt can help you change your credit behavior. People that have taken on too much debt tend to go into denial; they’d rather not know how much debt they owe. A professional debt manager will make you face up to your obligations.

You can get help from an organization like the National Foundation for Credit Counseling. NFCC has branches throughout the country; they are a non-profit, community organization that provides free and confidential debt management advice to anyone who needs it. You can even consult with them over the phone.

Consumer credit counseling will allow you to enter into a debt management plan with your creditors. There’s a possibility to reduce your monthly payments, but you’ll still be able to pay your balance in full. As long as your payments continue to be made on time each month, consumer credit counseling does not hurt your credit.

Robert Barrett, president and chief executive of InCharge Institute, advises consumers struggling with debt to seek advice through the websites of the Association of Independent Consumer Credit Counseling Agencies (www.aicca.org) or the National Foundation for Credit Counseling (www.nfcc.org), credit counseling industry associations that require their members to meet high business standards.

If you are still considering a debt consolidation company, be sure to know the Pro’s and Con’s.

Remember that educating yourself on the options available is the key to getting yourself back on track.