As a blogger you receive advertisement/guest post offers from debt consolidation firms. I do receive their pitches regularly. People, in general, think debt consolidation companies are bad, they are loan sharks. The fact is, it’s partially true, they are as bad as credit card companies if you learn to use them they’ll be the helpful ladder for you for coming out of debt.
But, this sector is not as much regulated as the credit card sector so, there are bad companies who adopt fraudulent tactics, giving bad names to debt consolidation industry in general.
If you follow general guidelines, you can take maximum advantage from these debt consolidation companies. Otherwise, if you let loose, you may be ruined. Basically, debt consolidation companies work with certain principles, that you should consolidate all your debts into one single and bigger chunk to better manage them.
They also look for ways to reduce the interest rate on the consolidated loan compared to individual high-interest rate loans. They also negotiate with creditors on your behalf for debt settlement, which results in the lesser amount to be paid than the original loan amount.
But, I am not promoting the debt consolidation industry here. The reason I discussed above is to let you know that debt consolidation does not require playing magic tricks. The best way, obviously, to protect yourself is to consolidate your loans yourself, without external help. You do not need to pay anybody a fee for the work you can do.
Why you should consolidate your debt yourself
- To have complete control of your money.
- To avoid fees imposed by debt consolidation companies.
- To protect yourself from possible fraud.
- Only you can bring the best deal for your money, nobody cares about your money more than you do.
Steps to take for consolidating your debt
First and foremost, the only consolidation is not going to help, you need to save money and allocate that to pay off your debt faster. Adopting a lifestyle to get out of debt is the best way, even more, effective than debt settlement or consolidation.
On the other hand, you should look out for ways to earn extra money in your spare time. Here’s a list of things you can do to consolidate your debts.
1. Make a list – Prepare a list for your creditors, the amount of debt and how much interest you are paying. you should come up with a list similar to the below one.
Secured loans are against your actual property and you may lose them if you can’t pay your loan. Give priority to pay off these loans first.
2. Calculate what interest on the consolidated loan you can afford – Once your list is ready, categorize loans that can be categorized. A mortgage can not be consolidated with other loans unless you go to debt consolidation companies. Better, take advantage of Federal home loan modification program, Bank of America started offering their program recently.
You may want to sell off your car and pay back your car loan with the proceed. If the car is a must have for you, go for a used lower-end car.
3. Negotiate with creditors – For unsecured loans, you can always negotiate with creditors. his is because your creditors would not get anything if you can’t pay. They develop a risk model taking a minimum default rate into consideration. Most of the credit card issuers offer a hardship program, you just need to call them and get enrolled. In return you’ll get lower interest rate advantage, they even lower your minimum dues per month.
You should try to negotiate beneficial terms for your high balance and high-interest rate debts first.
4. Watch for balance transfer offer – There are a number of balance transfer credit cards out there that offer o% interest for first few months. Take advantage of the offer. you can apply for one such card and transfer balances from old cards. Although you need to pay an upfront fee, you still will do better because of the lower interest.
Just don’t keep on transferring balance. Pay off the money you owe as soon as possible.
5. Borrow money at better term – You can borrow money through home equity, personal loan or even through social lending sites like Lending club or Prosper. If your credit card APR rate is, say, 15% – then you can borrow through one of these routes at a lower rate, and pay off the credit card debt.
6. Ask people to help – I heard stories of parents helping their sons/daughters by lending money. This could be the cheapest source for your loan. Even borrowing smaller amounts from your co-workers could be beneficial compared to borrowing money from your retirement fund. Be careful while you ask your friends and colleagues, relationships get ruined if you can’t pay back.
7. Your retirement fund – Although I vehemently oppose using retirement fund for paying off debt, when living becomes tough you don’t have better alternatives. Good thing is, if you are still keeping your job, you can repay your 401(k) or IRA fund later. If you have to repay at 5% rate then paying off a 10% credit card debt from retirement fund is a wise decision.
On the other hand, if you do not have time or resources to do the tasks, what should you do?
The answer is – choose a right creditor whom you can trust. I have heard both sides of the story. I have heard stories where people worked with a debt consolidation firm and successfully got over their debt.
I also heard stories where debt consolidation companies actually acted like loan sharks and accused of late/no payment even after paying dues on a regular basis. Debt is number one stress among us, don’t aggravate your stress by choosing a wrong company. They can strip you off your money.
The debt settlement companies or attorneys have to comply with the state and federal laws. They get penalized for violating the FTC laws. Any violation can be reported to authorities. Beware of their shady practices and stealing, read reviews online thoroughly before you take their help, if you can’t absolutely do it alone.
The ways to determine fraudsters among debt consolidation companies
- Read reviews at online forums, do not rely on blog posts, these may have been paid articles to promote fraudulent companies.
- Call up agencies like Better Business Bureau (BBB) and check the credentials.
- Do not agree to hire them on the basis of a phone call, verify their address, phone number, and past records before sending any payment.
- Asking for a huge fee up front towards application/registration is a red sign. Do not close the deal!
- Check with your original creditors if they are going to transfer your loan to these companies.
- Too much pitching for your money is a sign of caution, be careful!
This was not a paid post to promote any company. These are the facts that I believe in. People are getting fooled everyday, this post is to increase awareness to help them.
Readers, care to share your experience if you happen to work with any debt consolidation company? How was your experience?