Debt Consolidation: Guide to debt consolidation options

Debt consolidation is a way of lowering you debts by turning several debts into one single debt. If you have several high-interest rate credit card debts you can for instance save a lot of money by obtaining a loan at a lower interest rate and use it to pay of your high interest debts. Debt consolidation will usually also save your considerable amounts of money each month in billing fees, late fees and administrative fees. Since you will pay one bill instead of several bills, the administration costs will decrease.

If you are already heavily in debt it can however be hard for you to obtain new loans at a favorable interest rate. Most people interested in debt consolidation are already behind on their payments and can have damaged their credit score severely. With a damaged credit score, the new credits that you are offered will usually come with in an even higher interest rate than those credits that you are already stuck with. If you have some type of collateral, such as real estate, you can usually be offered a low interest rate if you secure the loan with the collateral. You should however be very careful and think this decision through, since you can loose your home if you do not handle your secured loan properly. A positive thing with this form of debt consolidation is that you can be eligible for certain tax advantages; you might for instance be allowed to deduct parts of the interest.

If you need help with your debt consolidation you can contact a company or organization that offers debt consolidation services. You should be extremely cautious when you are looking for debt consolidation services, since this is a scam prone area. There are a multitude of malicious companies and individuals out there that will offer you free debt consolidation, but in reality only worsen your situation.

If you have a local consumer protection agency in your area it is advisable to contact them first. They might be able to help you directly, warn you about free debt consolidation services that you are pondering the idea of using or send you to debt consolidation services that they know are serious and honest.

Since consumer debt is at an all-time high in the United States and more and more people spend more money than they earn the amount of insincere debt consolidation services increase every year since they are constantly finding new victims to prey upon. It is also easy to become heavily indebt due to illness, divorce, death of a spouse or unemployment, and for many individuals these insincere debt consolidation services seem like the only way out of a hopeless situation. It is easy to understand how a person heavily in debt wants to believe that there is a quick fix to all the financial problems and hardships. A lot of the people that fall into the hands of insincere companies offering free debt consolidation are already harassed by their creditors and might be on the verge of loosing their house.

Unfortunately, many of the debt consolidation services offering free debt consolidation will only worsen your situation. If you are offered free debt consolidation services that seem to have absolutely no downsides at all – be careful. It is common for malicious free debt consolidation services to spend a lot of money on advertisements, mails and telemarketing. You have most likely seen their advertisements in magazines, newspapers and on the Internet where they offer free debt consolidation services. Local cable stations and radio channels are also popular among companies offering free debt consolidation. Unfortunately, the fraudulent companies offering free debt consolidation can be very hard to distinguish from the fair and honest debt consolidation services that also need to advertise in order to find clients and that also offer free debt consolidation services.

It is common for dishonest companies to initially offer free debt consolidation and pre-approved “guaranteed” loans. Soon they will however ask for a fee. This fee can for instance be $100 and they will frequently compare this “small fee” with how much money they will save you in the long run. Why hesitate to pay $100 when you will save thousands of dollars? It is true that even honest credit card companies can require a fee before you get your credit. One of the major differences is however no major credit card company will guarantee in advance that you will get the credit, especially not if they know that you already have problems with your existing credits. You should therefore always become suspicious when you are offered pre-approved “guaranteed” loans as a way of free debt consolidation. You should also keep in mind that the federal Telemarketing Sales Rule prohibits telemarketers from asking for advance payments for “guaranteed” loans. You should not pay any money before you have actually received the credit.

Sometimes fraudulent companies will claim that they offer free debt consolidation, but that you must pay a fee to participate in a money managing course or that the fee will cover the cost of material that they will send you, e.g. forms that they claim are required in order to find out your current credit report. If you call a “900” number, your next phone bill might be a very unpleasant surprise since you can be heavily charged for the call. A seemingly free debt consolidation can therefore turn out to be very expensive.

You should also be aware of companies promising to “Wipe Out Your Debts” or other seemingly quick fixes will often recommend you to file bankruptcy. They will claim that bankruptcy is the best way of dealing with your debts and that all your debts will be removed by filing bankruptcy. Sounds terrific, doesn’t it? The problem is that filing bankruptcy will in most cases not remove all your debts. If you file Chapter 7 bankruptcy, there is a long list of debts that will stay even after the bankruptcy. If you file Chapter 11 bankruptcy, more debts will be included in the bankruptcy, but Chapter 11 is on the other hand certainly no quick fix. A Chapter 11 bankruptcy will usually take between 3 and 5 years. Regardless of which type of bankruptcy you file, the bankruptcy will be noted on your credit report and severely damage your credit worthiness for years to come. Filing bankruptcy is sometimes the best solution, but there are also many situations where filing bankruptcy will harm you economy rather than solve your financial problems. Be careful when offered free debt consolidation if the company offers no other alternatives than filing bankruptcy.

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