Needless Debt

Presently, the number of scam debt consolidation companies is constantly on the rise. Who doesn’t wish to assume that their debts would vanish once they complete two or three simple steps? People who’re bothered and puzzled about their debt condition often fall prey to scam debt consolidation companies. Choosing the best debt consolidation company for your needs is not something that you can take lightly. To choose the best debt consolidation company, you have to be pretty cautious and look out for warning signals of scam debt consolidation companies.

One of the most common scams performed by debt consolidation companies is asking for an upfront payment and not offering you the loan. Incidentally, U.S. and Canadian debt consolidation companies are not lawfully permitted to contact you and assure you a loan and subsequently request an upfront fee prior to the completion of the deal.

Another type of debt consolidation scam is to declare non profit status. The Federal Trade Commission has uncovered many suspect non profit consolidation companies like Debt Management Foundation Services and National Consumer Council that were channelizing funds to a profit consolidation company. Because of their misleading names, it’s not astonishing that unsuspicious consumers were ready to rely on them.

The preys to these scams got more into debt and struggled with an increase in interest rates, other penalties and their credit scores were also hurt. Some consumers also became bankrupt after being misguided by these scam companies. Furthermore, by concealing their so-called non profit status, these companies called numbers on the National Do Not Call Registry to promote their services. The Federal Trade Commission accused them of not only misrepresenting about their services, but also not disclosing the fees and penalties that would ensue.

Now that you’ve got a brief overview of debt consolidation scams, you should go through the preventive measures suggested by the Federal Trade Commission to select the best debt consolidation company:

• Explore the company and its services. It is good if it provides a broad variety of options and training on how to manage debt. You should also check companies with the Better Business Bureau.
• Watch out for companies that apply high pressure tactics to make you agreeable to a plan or give any assurances without assessing your particular needs.
• Go through the fine print; make sure to evaluate the agreement thoroughly. This is to ensure that it delineates the plans of the consolidation company and the time needed for them.
• Talk to your creditors to see whether they’re willing to work with the company.
• Prior to making payments to the consolidation company, make sure that the creditors have agreed to the plan suggested by the consolidation company. Till they do so, don’t stop making payments to your creditors.
• After you start the program, keep tabs on your statements and contact the creditors to make sure that they’re getting the payments
• Don’t select a company that is asking for excessive fees. These fees can accumulate and simply lead you to run up further debt.

Debt consolidation scams are plaguing the whole country. However, there are ways to avoid them. It’s time to alert to such scammers.

- Guest post by Jennifer Lohan

In our last post we looked at how you can use credit counseling to help get our of debt. In this post in the “Learning About Debt Solutions” series we are going to take a look at debt consolidation.

About Debt Consolidation

Debt consolidation is similar to the Debt Management Plan we discussed in the previous post about credit counseling in that you can combine your multiple payments under one new payment. A lot of times this new payment will have a better interest rate than some of your high interest credit cards. However, this requires taking out a new loan and generally is only available to those with at least decent credit. Sometimes these payments can take longer to amortize than your original debt even though the payments may be lower.

Cost

Many times debt consolidation should be seen as a method rather than a program. It is simply a loan that you take out and use to pay off your current debts and in turn pay the loan back over time instead. Therefore, the costs will be determined by the interest rate and amortization of the loan. However, as Dave Ramesy notes, this only treats the symptoms of your debt problems and many times you will find yourself right back into debt.

Affects on Credit

Debt consolidation in itself doesn’t have any effect on your credit as long as you make the appropriate payments on the loan you took out.

Conclusion

Debt consolidation is a good candidate for those that may have a history of good credit but may have unforeseen emergencies that came up and caused a lot of debt in a very short amount of time. Debt consolidation loans should be used with care as many of them are secured loans. This means that if you don’t make the payments on your consolidation loan you can lose the item that was used to secure it. For instance, if you took out a loan against your house and you don’t make your payments then you can lose your home.