Fast And Lasting Relief From Debt Consolidation |
|
Using debt consolidation services to get out of debt faster and save money calls means researching prospective organizations. debt consolidation scams must be avoided.
. Debt consolidation is not the same as debt settlement or debt negotiation. Debt consolidation companies charge substantial initial administrative fees apart from a monthly service fee. Fees differ according to the company and debt amount. They collect monthly payments from you but don't pass them on to your creditors. Rather they put it into a trust account, negotiate with your creditors and make a lump sum payment once your account balance is sufficient to repay your debts in full. This may take years. Meanwhile your creditors may sue you and have your wages garnished. Debt consolidation companies don't ask to stop all interest, late fees and over- limit fees. This means that during negotiations, your debts continue growing. Thus, if sued, you'll owe more than before. Then there are plenty of incompetent debt companies who don't give you the real picture. It's permission by omission, as you are not informed how they work before signing their agreement. Or even after. With the right questions you'll understand. An Example Take the example of $20,000 in unsecured credit card debt. $10,000 is owed to one credit card company, $6,000 to another and $4,000 to a third. You may choose a 5-year plan for $250 monthly payments to the debt consolidation company. $250 for 60 months adds up to $15,000 only saving you $5,000 and perhaps making you debt-free in 5 years. The debt consolidation fee is $750 for the first three payments, with nothing for your trust account before your fourth month. $50 of the $250 monthly payment goes to the debt consolidation company as service fee, leaving $200 for your trust account. Debt consolidation companies mostly claim to negotiate debt for around 50% of what is owed. For example, take the lowest credit card debt. With $4,000 being, if your creditor agrees to $2,000 as full payment, it will take 10 months at $200 per month for your trust account to pay off the credit card. However, your first 3 payments are taken as the debt consolidation company's fee. This makes your first credit card settlement 14 months after embarking on the debt consolidation company's agreement. The problem arises when your creditor refuses to accept half the amount of your actual debt unless paid in full. Or else, you need to make your normal monthly payments. Without $2,000 in your trust account until after over a year of halting direct payments to your creditor, you can be dragged to court and have your wages garnished long before your $2,000 is accumulated. As for your other creditors, they'll be kept waiting even longer for their money from the debt consolidation company. The $6,000 debt will take 15 more months to pay off as long as your creditor is willing not only to wait that long but to accept only 50%. Then there is the $10,000 bill still to be tackled. Alternatively, if you've opted for a 3-year plan with the settlement company, your debts get paid off earlier. However there is no guarantee that your creditors will wait that long. The truth is, you can negotiate with your creditors on your own. Usually they agree to the smaller monthly payment and suspend interest and fees from being added. Then there are the thousands you save from the debt consolidation company's fees. Don't sign up with any service before checking on the company thoroughly. Don't be misled by words like "nonprofit," which a lot of debt consolidation companies claim. By paying $15,000 over a 5-year period and settling debts at half the actual amount, they make $5,000 from you. That can be called a profit, all the more so because you have actually not been helped. Most debt consolidation companies permit cancellation of an account for a refund of your payments, minus the fee and the monthly service fees. If you feel you have been misled in a debt consolidation program, file a complaint with the Better Business Bureau or hire an attorney. |
