Cut Your Debt in Half
In tough times, many more people are looking at debt consolidation as the way to go to help them get out of a financial bind. Many of them decide to look at debt consolidation companies to help them. Though there are some that might be reputable, many aren’t, and you will end up worse for wear than if you were going to do it yourself.
Here’s the basic premise of these “scam” debt consolidation companies. They will look at all of your financial information, and if they accept you, which they almost always will. At that point, you will have to pay them a fee, which can range from a flat fee of $500 to $1,000 most of the time, or a percentage of your outstanding debt, which can range from 10% to 15%. That can be difficult if you were having problems paying your bills to begin with.
How will they help you find the money? The first thing they will tell you is to stop paying on your credit cards and give the money to them. What they’re going to do is build up a pool of money on your behalf, but of course this is going to put you behind with your credit card companies. And, if you miss your payment to them, they have the right to take a percentage of the money they’ve been holding for you and closing out the deal you made with them, and you’re back to square one.
It’s actually their intention to get you into a collection status of some type so that they can negotiate a settlement that not only pays the creditors less money than what you owe, but they get a percentage of however much they’ve saved you in fees. Of course, your credit rating takes a hit, but the debt is gone. When they tell you that your debt will be paid in so many months, they’re doing that and building up your fund over that entire time so they can make a better negotiation with your creditors. The lower your FICO score is, the better the deal they can make for you.
This won’t stop any of the phone calls or delinquent mailings you’ll be receiving for falling behind on your payments. Your sense of relief is false, and it will affect your credit score in some fashion on the back end. Remember, negative actions on your credit score will usually sit there for seven years.
What you end up paying for is someone to handle services you might be able to handle on your own. Calling up your creditors and asking for more time or a short term deal is a much better way to go, especially if you have hopes that your status will change for the better in a little while. And even if you’re not sure it will, you will still buy yourself some time and breathing room, which helps you think about other options that are hard to come up with when you’re stressed.
There are many components to debt consolidation that people need to do research and be aware of both the benefits and the dangers that may come. Not reviewing either could end up costing more money, and hurting your status more, in the long term.