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How You Can Avoid Consolidation Problems?

Dec 22, 2007
If you are in debt up to your eyeballs, the fantasy of debt consolidation sounds wonderful and can suck you right in. It would be great if someone had the power to shrink your debt into one little package and shrivel that debt into only one hundred dollars or so.

When someone has outstanding debt, the convenience of having everything all rolled into a single package sounds like the perfect idea. Before you opt for this option, it is important to know the serious risks that accompany these consolidation loans.

The biggest myth about debt consolidation loans is that they are easy to get. Now if you really need a loan, it's because you're in trouble financially and your credit history most likely isn't the greatest.

The consolidator may entice you with promises of an easy-does-it loan and end up charging you higher rates than you pay now. Yes your monthly payment may be lower, but you'll end up paying more due to the extended time of the loan and the higher fees.

Another problem with these types of loan companies is how they negotiate with your money to help you get out of debt, yet make a living for them doing so. Many consolidators build in a fee as part of the monthly payment you make to them.

That fee is usually about 10 percent of the payment. They pass along your payment to the creditor and get back a 10 percent to 15 percent slice that the relieved client (YOU) is only too happy to rebate to the consolidator for all of their assistance.

Another problem is those who are in deep debt have the impression that a single loan looks better on their credit report. Yet this usually proves differently. This is because a key portion of your score is the length of time you have had with your opened accounts.

First, is it worth paying someone else to do what you can do on your own? There are things you can do such as call and negotiate lower interest rates, stretch out your repayment schedule and pay off the highest-interest debts first.

National Foundation for Credit Counseling has branches throughout the country; they are a non-profit community organization that provides free and confidential debt management service to anyone who needs it, even over the telephone.

I believe it is a good alternative to try before heading off to one of the many consolidation firms sprouting up all over the country.
About the Author
Court provides information about unsecured personal loans and teaches people how to pay off private student loans.
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