Be Aware Of Debt Consolidation Scams
While there are many advantages to debt consolidation, there are a few concerns one must be aware of before approaching a debt consolidation company. If you have a little bit of forethought on these concerns, it may keep you from getting further into debt.
There are numerous scam operations posing as ‘non-profit’ credit counseling companies, which only want to use people who are deeply in debt for their own profit. These kinds of companies do not have your best interests at heart, and you may be worse off than before you approached the company.
Many times, by simply asking your creditors for them, you can get the same benefits that a credit counseling company offers to you. For example: with a student loan, on some schedules after a certain number of on-time payments your interest rate is lowered a little bit. It will take longer for the interest rate to go down if you decide to go with a debt management program or consolidate your student loans with a bank or other lender, because you will be starting over with the time period.
You may be at risk of losing your home, if you consolidate your debts through a second mortgage or a bank loan, because it will be a consolidation loan that is secured by your home and failure to pay means great loss. Additionally, you will still be in debt for about the same amount or perhaps for a slightly lower amount. A lot of people see this form of debt consolidation as permission to go out and charge up their credit cards, because their debt is taken care of. It can be very easy for a person in debt to get into more debt after they consolidate their debt and you can use debt consolidation just so many times. It is very important to have the right frame of mind before deciding to consolidate your debt, and to have the will not to land in the same situation again.
Another disadvantage to a debt management program is that you cannot get new credit during this time and for some people, this is a good thing, as they need to learn discipline to ensure they do not get themselves into debt again.
Due to the fact that some debts will not qualify for a debt management program, there may still be multiple payments to make each month.
Another disadvantage could be that if you get an increase in your income, through a raise or a large income tax return, some debt management programs do not allow you to make extra payments ahead to your debts. If you do send an extra check, it may simply be held in an account to use for the next payment. When consumers who use a debt management program have extra money, they should put it in a savings account or a fund for emergencies.
There are advantages and disadvantages to bill consolidation, you have to be the judge of whether the advantages outweigh the disadvantages for you.