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Not All Debt Consolidation Programs Can Rescue Your Financial Situation

Jul 12, 2008
While debt consolidation almost always helps people get control over excessive, high interest debts, there are actually instances when it doesn't offer much relief. The general idea of debt consolidation is terrific: smash all of your debts into a single account, and somehow pay less per month and pay it off quicker. When you put it that way, it seems a little too good to be true - similar to a "get rich quick" scheme!

Thankfully, not all debt consolidation is a poor financial move- in fact, most are legitimate and offer a way to get control over your financial situation. Just keep in mind the following when you are considering a debt consolidation:

You May Not Qualify For a Debt Consolidation Loan

Usually, by the time someone decides they need a debt consolidation loan to pay off all of their other bills, their credit is a bit on the poor side. Having a low credit score, or numerous late payments made on your bills will make it very difficult, if not impossible to obtain a debt consolidation loan. People who really need a debt consolidation loan tend to be people who are making their payments late (which sparks their interest in the debt consolidation loans in the first place).

Some debt consolidation loans are on to this... and take advantage of this issue. While you won't qualify for their best loan products with bad credit, they might try to entice you with a high interest loan that results in lower monthly payments. What's wrong with that, you might ask? Isn't having a lower monthly payment the entire point and reason for consolidating your debts with a loan? Yes... except that a loan with 22% interest and lower monthly payments means you're going to be paying even MORE to pay off the original debt than you would have if you continued to make your regular monthly payments.

While not the ideal situation, if you really cannot keep up with your monthly payments as they are, you may have to consider that 22% interest loan, or search for ways to increase your income so that you can keep up with your monthly payments.

Credit Card Balance Transfer Offers For Consolidation

Credit card companies send out various offers to consumers hoping to get new card holders. They also send balance transfer offers to existing credit card holders, hoping to get their existing customers to transfer other debt to them, as well. While a low interest or 0% interest balance transfer offer is a reasonable solution to consolidate higher interest debts, it's important that you can either pay off the balances you transfer within the low APR/0% interest time period or you have another solution for when the promotion ends. Often, a balance transfer offer is only good for six months or a year - and if you haven't paid off your balance before that time, you end up with a high interest rate on the remaining balance.

Debt Consolidation Companies That Will "Do It All" For You

There are a number of debt consolidation companies that negotiate lower interest rates with your creditors for you. Sometimes they have a higher success rate than what you would have yourself if you called to try and get lower interest rates or better repayment options, but not always. Instead of using a debt consolidation company to take care of that for you without at least trying it for yourself, give it a go on your own and see if you can't make arrangements with your creditors - you may be pleasantly surprised at the outcome.

The trouble with the "do it all for you" type consolidation company is that there is a great many of them who set things up for you, arrange for lower interest rates or different repayment terms to make it easier on you to repay; and then take a monthly payment from you to forward on to each of your creditors for you. Sounds ok so far, right? Most take a fee for the service, a fee you wouldn't pay if you did this on your own, and some make your payments late. Making payments late to companies after you've negotiated lower interest rates or a different repayment plan can completely negate the arrangement and send you right back to your original high interest rate and high monthly payment.

While some debt consolidation programs really do help people, it's important that you research and determine whether or not you must use a company or if you can improve your situation with some slight changes to your personal budget.
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Visit DestroyDebt.com for more information on debt consolidation.
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