Do you have a lot of unpaid
bills and are having trouble making the minimum payment every month?
Are the debt collectors hounding you mercilessly?
Are you receiving letters from the collection agencies daily?
A debt consolidation loan may work for you.
On way to get a debt consolidation loan is to tap into your home
equity if at all possible, for those who have the equity
available.
This may be a solution for those who have run up a lot of credit card
debt.
This will not add to your debts but re-financing your home and taking
out an equity loan can be a solution for some if you have the
equity available and can diligently put away those credit cards that
got you into the debt predicament in the first place.
This frees up your credit cards as the balance is moved from them to
the other loan, but it is all too easy to rack them up again.
This generally only work for those who are really committed to
consolidating their debts and have worked out a stringent budget to
ensure that they do not fall into the same trap.
The benefits are reduced monthly payments which do give you some
breathing room but can also lull you into a false sense of security.
Dealing with Debt Consolidation Companies
If you are feeling
the pressure of mounting debts and are looking for a debt
consolidation company or a debt negotiator there are a few pitfalls to
be aware of as you explore this option.
Some companies charge hefty upfront fees, others can charge fess based
on the amount you owe, or the amount of overdue accounts and credit
cards that you have. A few will also charge a fee dependent on the
amount of debt that they can get the card company to settle for.
All in all it's still a scary situation.
Your credit rating can also take a super hard hit if going through a
debt consolidation company.
Often the company will tell you to stop making payment to your
creditors and make the payment to them instead.
However it may take them months to negotiate a settlement with
all your creditors and in the meantime you have not been making even
the minimum monthly payment impacting your credit report negatively,
and the debt consolidation company has your money in an
account and it is not going directly to all of your creditors.
The goal is to get out of debt, rather than to totally ruin your
credit rating if possible.
Another pitfall that can happen is that if your creditors refuse the
settlement amount from the debt consolidation company you can be sued.
Then not only are your our fee for the debt consolidation but your are
still obliged to pay back the original amount of the loans.
While this is a rather rare scenario it does happen.
Investigate all companies diligently before signing anything at all.
If you only have a
few thousand in debt a better solution may be to use
a debt management program.
They way they typically work is that you write a check to the debt
management agency and they in turn issue check to all your creditors.
One of the small side benefits of this is that some credit card
companies will lower your interest rate on your debt and quit charging
late fees in they see you are earnest in paying off your debts.
The average debt management program lasts 2 to 5 years depending on
the full amount of the debt and repayment terms.
Be sure to do your homework and investigate any company before dealing
with them.
If possible get in writing all fees charged, how much they charge, and
EXACTLY what they are charging for.
Debt consolidation is a viable alternative but due diligence must be
done to make sure that you do not fall prey to unscrupulous companies.
Copyright 2003
www.thrifty-mom.com
Home
Articles