Debt Consolidation: Don't You Love That Word? |
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The claims may sound impressive by promises of debt consolidation for no fee. A company offering both credit counseling and debt consolidation services, analyses your expenses to determine what you can pay, in total towards your debts every month. Then they negotiate with your creditors, only for unsecured debt and not car loans and mortgages, for lowering minimum payments and even interest rates. Certain debt consolidation company's online claim to achieve rates lower than the usual 18 to 20 percent: Chase Manhattan 9 percent, Citibank 8 percent, Bank of New York, 6 percent, Bank of America 0 percent. Debt consolidation services are the best hope in debt-laden scenario. They can guide you with care to find your way out of all debts. Therefore their claim of saving you money is justified, as the overall amount you pay is lowered, if you're paying a lower interest rate and putting more into the principal every month. However you may be able to get the same deals on your own if you can handle negotiations. Basically they do it for you. Debt consolidation services make payments to your multiple creditors every month, leaving you to worry about one payment to them. In getting down to the finer details, debt consolidation companies treat you so well because your creditors pay them. There's been a huge spurt in these businesses due to the pathetic credit situation in the country. With massive outstanding debt and the number of defaulters on payments, making bankruptcy quite easy at this point, creditors risk losing a lot of money if they don't compromise. The function of non-profit debt consolidation companies is merely as double-service middlemen. While doing the collection for creditors, they also negotiate on your behalf. The credit card companies pay the non-profit debt consolidation companies in the form of contributions and therefore are able to grant major tax write-offs for themselves, making up for the losses incurred in reducing their massive rates. The main advantage that you get is the end of creditor calls once you go in for a debt consolidation program. Your debt consolidation company is supposed to deal with them. Thus under ideal circumstances, there's something in it for everybody involved. The debt consolidation or consumer counseling company, the creditor who's been causing you great stress with sky high rates who now makes just a decent profit from you, and yourself. In less ideal circumstances, there are certain promises that no debt consolidation company can keep and should not claim. Stay away from them. o Repairing credit history: A bogus claim, as no one can alter your history. o Giving you a new credit identity: Although illegal it is practiced. It involves a false Social Security number for you to get credit cards again. o Pay upfront to perform: Avoid at all costs. Basically these are all services that you can do yourself for nothing or hire someone to do it for you. If hiring, ensure that a written contract specifies exactly what is expected. Victims of a debt consolidation organization have laws for protection. Consult your state attorney general. Attorney generals usually have toll-free consumer hotlines. Last in debt consolidation, mortgage companies try selling second mortgages to consolidate your debt from a second mortgage on your home. Therefore you are to use most of the second mortgage money to pay all the credit cards, after which you pay the mortgage payment every month. Though not illegal, it is merely foolish. You will still be borrowing money and paying interest. Second all the equity in your house is given away. This equity can prove a major nest egg for most and the biggest asset they can have. Therefore it should not be given away until all other options for debt consolidation have been explored. The bottom-line is that it may be better to live with debt by negotiating lower interest and minimum payments and then paying more than the minimum to get the principal paid off faster. |
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