Concerns with Debt Consolidation
Recent reports in the media have made people concerned about consolidating their debt. This is because many people want to consolidate unsecured debt into secured debt. Even if the monthly payments are lower, the total amount repaid is often a great deal higher because the loan goes on for a longer period of time. Debt consolidation could simply treat the symptoms of debt but not solve the underlying problem.
One critic on daveramsey.com argued that “debt consolidation is nothing more than a ‘con’ because you think you’ve done something about the debt problem.” The habits that cased the debt aren’t necessarily resolved with this solution. Getting completely out of debt is a process that is not quick or easy.
Avoid the scams
More debt relief scams have been found in the industry in recent years. Online companies cause the most concern, so you should be particularly careful when looking for help with your debt online. Other companies may not be running a scam, but the services offered may not be suitable for your situation. The following tips may help you avoid these scams when choosing a debt consolidation company.
- Find a consumer credit counseling service that offers free financial counseling. These non-profit organizations keep you away from new debts and help manage existing debt.
- Don’t use a company that is not licensed because your chance of committing fraud increases when they do not have the appropriate license.
- Look out for companies that have insanely low interest rates. This probably means that the company has hidden charges, which will increase the cost of consolidating your debt. Insist on full disclosure of all fees and charges before you enroll in any program.
- An untrustworthy company may require you to pay high upfront fees in order to ensure their services. Under the Credit Repair Organizations Act, debt consolidation companies can’t require you to pay anything until they have completed the services they have promised. If the company asks for any more than a certain percentage based on your debt, you should avoid them.
- If the company you are looking into asks redundant personal details, like your social security number and your account details, before they provide a quote, you could be at risk of getting your identity stolen. No one should ask for this personal information before you sign an agreement.
- Companies giving unethical advice (such as asking you not to contact the credit bureau, telling you not to go to credit counseling, or to create a new credit identity) are probably not companies you want handling your personal finances.
- Review your contract in detail before signing. The contract you sign with the company could have hidden charges or limitations. Take time to thoroughly review and understand the contract, and ask questions when necessary.
- Research quotes from multiple companies, and make sure you choose the best deal.
- Search the internet to find out about the company’s reputation. Respectable companies won’t have very many customer complaints. However, even the best companies may have some online complaints. No company is perfect.
- Don’t use companies who try to pressure you into making a quick decision or who make false promises. Companies who send out spam emails, letters, and phone calls should generally be avoided.
- Let all of your creditors know about your plans to consolidate and get a receipt from them after each payment. Keep a record of these payments, stay updated, and make all of your monthly payments on time.
- Design a payment plan to pay off your debts without default.
More companies are looking to profit from people with bad credit every year, so consolidation can be a risky move if you do not take the time to choose the company wisely. With a little research and careful planning you can avoid these dishonest companies.