W e can offer specific advice on debt consolidation . T he following general information may help you better understand how debt consolidation happens. It does not constitute financial advice and you can contact us directly for further information , help and advi c e on the process of debt consolidation.
Three allegedly bad debt consolidation moves:
1. The Hard-Money Loan
"The biggest myth about debt-consolidation loans is that they're easy to get," says Scott Kays, president of Kays Financial Advisory Corp. and author of "Achieving Your Financial Potential." If you really need a loan, it's probably because you've already missed a few payments and your credit history is already tarnished.
And that's the problem says Kays if you are a credit risk, the consolidator may entice you with promises of an easy to get loan, and end up charging you much higher interest rates than you're paying now. "Your monthly payment may be lower" with one of these loans, "but you'll end up paying more," says Kays.
2. Debt Consolidators Who Promise to Take Care of Everything
This is the fairy godmother fantasy. This Nice Big Debt Consolidation company comes along and swears they'll make your life so much easier. They'll negotiate lower interest rates, reduce your monthly payments -- and all you have to do is make "one easy payment."
In reality, many debt consolidators build in a fee as part of the monthly payment you make to them. It's usually about 10% of the payment. They pass along your payments to the creditor -- some debit directly from your bank account -- and in return receive a commission.
To desperate ears this might sound like an ideal solution, however an important question to consider:
Is it worth paying someone else to do what you can do on your own, i.e. negotiate lower interest rates and stretch out your repayment schedule and pay off the highest-interest debts first?
3. The Balance Transfer Trap
Low-interest balance-transfer cards are a dime a dozen these days, but remember that those rates only last a few months -- and then you have to switch cards again. The danger is that at some poin all this activity begins to show up on your credit report, and you start to look like a bad risk. Then if you get turned down, "you could be left holding the high-interest card you were hoping to dump," says Kays.
If you think you can swing from the balance-transfer vines for a few months, just make sure you formally close all your accounts yourself, and then notify the credit-card company to mark the account "closed at customer's request." "Otherwise, on your credit report, it will look like the creditor closed your account," says David Mooney, PR director of Equifax, one of the UK's biggest credit reporting agencies. Thus making you look like an even worse risk, even when you're doing your best not to be.
Always remember you do NOT need to pay for debt advice about your debt problems. Your
local Citizens Advice Bureau can offer FREE independent help. In addition they can help you calculate your payment schedule and talk with your creditors.
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