Bad Debt Consolidation Seems Almost Like A Fairytale.
Somehow, there is someone out there that can take all your debt and put into one easy payment while lowering it at the same time. By doing this, you are supposedly going to save money somehow. Bad debt consolidation loans are not as great as you might think.
These advertisements seem to be everywhere you look. Businesses who prey on those who are overwhelmed with debt.
They tell you that debt relief is a simply click away, or cut your payments or interest rates in half.
These are tempting promises that appeal to anyone who is drowning in debt. These people are willing to do whatever it takes to get out of it. Here is a list of things to consider before you contact one of these companies.
There are three bad consolidation moves that you might take
If you want to consolidate your debt, you probably are already behind on loans. You can get a consolidation loan but the interest rate is going to be extremely high. In reality, you have lowered your payments but you are spending more on the interest. So, you end up paying longer which means paying more.
Consolidation companies offer to get your payments and interest lowered and deal with your creditors if you make a small payment upfront.
For the most part, your monthly payment includes a fee that you will pay to them. It is about 10 percent of your payment. They make your payments and receive 10 to 15 percent back from your creditor.
Why should pay them when you can negotiate with your creditors for free?
Creditors are known for threatening debtors. Knowing this, you probably do not want to deal with them but, think about it this way. If you talk to several consolidation companies, you will find they all offer the same thing. Here is the kicker though. They tell you that it can take 32 years for you to pay off your debt on your own. They offer to cut that time down to 4 and half years. Look for a financial calculator on the internet.
Enter the numbers they gave you. You are going to find that you can pay off your debt faster on your own.
The other downside is that these companies are known for missing payments. Isn’t that what you are trying to stop?
The final bad move is the balance transfer. They pull you in by offering low interest rates. The problem is that these interest rates are only for a set amount of time. So, in order to keep a low rate, you have to switch again. All this activity looks bad on your credit.
If you make this choice, contact your credit card companies yourself and have them closed out at your request. Make sure to that they mark the account as closed at customer’s request.
There are some good moves you can make to help with your bad debt situation.
Home equity loans have low interest rates and offer a tax deduction for the interest you pay.
You can also refinance your home if you have equity built up. Pay off your debt with the money you receive.
Several other option are refinancing your car, getting a personal loan and negotiating for better interest rates.
Layla Vanderbilt is the content coordinator for a leading website that offers for instant bad debt consolidation advice and guidance.
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