Is Debt Consolidation Necessary?

With near everyone complaining about credit card bills they can no longer pay and mortgages they never should have taken out in the first place, it was just a matter of time before the debt consolidation industry took hold of the public’s imagination. Most people finally seem to understand that, after 2005 congressional legislation, Chapter 7 bankruptcy no longer promises anything to ordinary consumers beyond increasingly dear attorney fees, and, if recent studies are true, our national obsession with unsecured debt continues unabated. An article in the Wall Street Journal announced that the average household now carries a dozen credit cards among their members with a total balance approaching eighteen thousand dollars. Honestly, if anything, it seems odd that Americans did not turn to the debt consolidation approach sooner. Once debts have reached a size and number that makes their speedy resolution untenable, it just makes good sense to examine whatever alternatives now exist. However, it’s one thing to take a look at debt consolidation and quite another to jump blindly into the first program sold by a glib professional promising the world. Debt consolidation may be a solution, but each of the various programs will contain its own share of dangers. More to the point, they certainly shan’t eliminate lifelong burdens without some degree of discipline on the part of the borrower.

Just because we as a people have finally recognized our problems with debt both secured and unsecured does not mean that we are actively striving to fundamentally eat away at the underlying concern. Debt consolidation is sort of a catch-all phrase for many different approaches toward managing financial burdens, and not all of these consolidation programs should be equally respected. Indeed, some of the shadier options could even be considered actively destructive to the borrowers’ household economics. In this essay, we would like to discuss some of the problems that debt consolidation presents for families. While the notion of consolidation has received a good deal more attention of late, the same cannot be said about the details surrounding the various techniques utilized. Also, we would like to introduce some of the ways that consolidation could be simply avoided through hard work and disciplined budgeting on the part of the borrowers. Remember, even though it’s far less damaging than bankruptcy, all forms of debt consolidation should still be viewed as last ditch efforts to repair mishaps or heal poor purchasing decisions from past years. The debts are not going to be eliminated after all, and it’s important that consumers remember that they are still liable for the sums even once they are consolidated. If debtors continue the same careless shopping sprees and knowingly spend more than they earn, than consolidation will have no effect and, once again, could even worsen the borrowers’ overall financial scenario.

One of the main principles you should take to heart when looking at the debt consolidation process should be this adage: the lower the payment, the longer you’re going to be stuck paying off your debt. The less that you pay every month following a successful debt consolidation, it should be understood, will only increase the amount of money that you will pay at the end of the loan after compound interest continues to expand the overall balance. It’s just common sense, really. Put off paying today what you could pay off tomorrow, and you will inevitably owe exponentially more. Most lenders, of course, will never illustrate that philosophy. Consolidation companies’ income largely comes from just this sort of accumulation of interest payments, and they generally try to appeal to borrowers’ (oft delusional) beliefs that they will immediately quit the spending reflexes of a lifetime and devote themselves to patterns of saving that would allow them to repay their loan that much earlier by paying over the minimums. Don’t be fooled by easy flattery and pie in the sky speeches about a sudden change of habits. Most every consolidation professional will attempt to insist that, all of a sudden, you will pay more than the minimum obligation. Know yourself and your buying habits. If you have not been able to restrain spending in the past, there’s no reason to believe that a sense of responsibility will suddenly come your way absent any effort, and, depending on the program, the sudden availability of open credit accounts could just make things worse.

At the same time, though we would certainly advise borrowers to do everything they could to pay down their debts regardless of what the minimum payments are fixed at, one also has to make sure that they do not begin a similarly obsessive strategy of earmarking every dollar earned toward repaying past debts. Much as you would reasonably hope to devote all available funds toward debt elimination, the smart borrower yet maintains a cash reserve to guard against every bad patch. For those loans attached to collateral (equity loans, particularly), it should be of the greatest importance to ensure breathing room. Real estate values have become so tenuous of late that no home owner who cares about their investment (or, more to the point, their family) should dare risk their precious equity for a quick fix, and debt consolidation in the wrong scenario could actually back fire against the consumer. Considering that the financial obligations likely came about through reckless spending, consumers must be very careful not to over indulge their new desire for a clean slate. Loan officers, in particular, are at fault for convincing their clients about the future health of an uncertain property market or evading the depressing but pertinent details about foreclosure and the danger of equity loan consolidation. However the mortgage industry attempts to weather the storm partially caused by predatory lenders acting in their own best interests, the effects of the loans that they pushed upon unwary borrowers continue to bother the national economy.

One should never entirely trust the lenders, after all. Credit card companies and mortgage loan companies depend upon the borrowers’ willingness to sustain payments and extend them for years if not decades. In fact, lenders list each client’s balance as a bankable asset to be sold or traded to other lenders (or, ironically, used as collateral for their own loans). Whatever the lenders’ literature or representatives may say about helping borrowers minimize their debt load with an eye toward eventual debt elimination, their business model explicitly demands a continual revolving debt cycle that forces debtors into a life of servitude, ever subsidizing their financial burdens without actually getting rid of them. We are not necessarily suggesting that you close all cards after consolidation – though, with some programs, that will be necessary – because of the effect that would have towards your credit rating. The ever powerful FICO score likes to see some accounts open to demonstrate that you still maintain some credit viability, and, with all accounts closed, you would be starting again from scratch with no current credit history to draw upon. Ideally, you would maintain one or two of the oldest accounts or the accounts with the largest available balances (interest rates should also be part of this discussion), but it is of sacrosanct importance that these accounts not be used regardless of how much you may wish to resume purchasing. For convenience’s sake, it might be useful to take out a bank card for ordinary spending but only one that has debit purposes without overdraft potential.

All the same, much as plastic may now seem an undeniable essential of the modern consumer experience, there are reasons to still avoid utilizing any cards at all. Studies have shown that household economics are utterly ruined through the casual use of cards credit or debit when attempting to maintain some sort of workable budget. Once families no longer have to count up the prices of the items that they are purchasing, it seems all common sense goes entirely out the window. For this reason, we recommend that debtors – even before they have begun the process of consolidation – attempt to refrain from using cards even during their normal shopping for the household. For that matter, they should try to not even bring an ATM card upon their person and make do with whatever seems reasonable when leaving their house. If you only have twenty dollars to spend at the supermarket, you will be much more inclined to question the necessity of various purchases and also make more of an attempt to comparison shop by trying lower cost brands and such. One should be careful not to ignore the bulk discounts for large families, but, by and large, this sort of tactic goes a very long way in conserving money to bolster savings that can better be used paying down the debts that you already have.

For larger purchases, still, even those most demonstrably needed, the smart household should see the need for such purchases coming well ahead of time and maintain a small savings each week to help pay for the item in cash. While we have to acknowledge that some things may indeed be reasonably justified by resorting to lay away plans – washing machines, say, or refrigerators that suddenly go on the fritz must be replaced – home entertainment systems or family trips or any such leisure indulgences hardly fall under the same guidelines. All the same, even though we understand that vehicles and residences require loans and mortgages, you must make sure that you do not let yourself become liable for more than you really need regardless of what debt consolidation specialists may pretend. Consider previously owned automobiles or smaller homes in less desirable areas of town until you can put a proper amount of cash down: especially considering the stormy forecast of this economy. With regards to property loans, for example, never even think about taking out a mortgage for more than eighty percent of the appraised value. Not only will you have to pay out a so-called mortgage insurance to the lender (in reality, this is less insurance than a extravagant and usurious monthly penalty insuring nothing more than the new homeowner’s foolishness and the lender’s security), it just doesn’t make sense in this time of real estate market instability to gamble with so dear an investment.

Even though refraining from big ticket items you would ordinarily have bought or rigorously cutting down the household budget might require some short term sacrifices, you’re often saving yourself sacrifices farther down the road. The first step, though it can sometimes be difficult, is to take stock of the money that you’re spending each month. Try, even for a week, writing down the amount of money that you spend on groceries, on restaurants, on entertainment, and outlining different things that you may be able to cut back on. Often, it’s easier than you think. Are you in the habit of picking up a coffee every morning before work? Try waking up five minutes earlier and brewing it yourself. If you make a batch and microwave it each morning, you can even save yourself the time. Do you catch a beer each evening after work? Is it imported? See what you think about the domestic brews. Pick up recipes off the internet so that you can have the experience of dining out even when at home. So much money is spent upon the kitchens of restaurants, but, sometimes, even a few degrees of difference can make all the difference between settling and making everything you want out of what you already have.

Not only is this sort of do it yourself approach helpful to paying down bills over a short term debt consolidation, it can have a long term effect when attempting to manage debt over the course of a lifetime. The basic key for any realistic debt control should be to figure out where you’re spending the most of your money and then try to make a couple of small alterations that can make a real difference. Even a slight daily change can be the difference between just barely scraping by and socking away fifty bucks each week for savings or paying down the debt. All of this will clear the way for you being able to live exactly as you want to in the future. Would you rather put all your money toward paying off your debt or investing toward your future. Once you make a solid decision to put your monthly and weekly spending under control and stand behind that with all of your resolves, you can put yourself in the position to get rid of your outstanding debt without even necessarily resorting to external consolidation. And, once you’ve cleared away your debt payments, you’ll find money that you never even knew you had.

Spending is a disease, you know, with symptoms of addiction just as real and just as ruinous as any other addiction. Much as we make fun of supposed shopaholics through tee shirts and bumper stickers, this is no laughing matter, and often chronic behaviors such as purchasing beyond limits can be signs of more serious mental problems. Debtors Anonymous exists for such a reason, and those consumers who feel that they can no longer control their buying impulses would be advised to contact their local chapter. Even for borrowers whose problems aren’t that serious, there are ways to help themselves with what have to be seen as poor habits. Many of the consumers we’ve talked to found some solace in attempting to sell the less desirable evidence of what they had bought. Look through your garage or basement and see what can be sold. So many American families have collected scads of possessions they rarely (if at all) use but which could be readily sold to fuel the debt consolidation payments. Garage or yard sales are the most common avenue toward resale, but don’t forget about classified ads or eBay and Craigslist. In this modern society, it’s remarkably easy to find a buyer for even the most seemingly worthless trifle or create a bidding war for those pieces of value.

Much as borrowers may make strides to change their habits or work to earn more money through traditional employment or the sale of unneeded possessions, we recognize this will not always be enough to sufficiently alter their finances so as to affect consistent debt elimination. For this reason, debt consolidation may be necessary, but we urge each consumer thinking about the process to learn more about consolidating. While there’s a clear limit to what an article such as this could hope to explain, some elements are true throughout. Obviously, no matter which form of consolidation you choose, there’s no clear way to know the terms of your loan until you meet with the professionals you’ve selected to handle the proceedings. While you may be able to at least guess the terms to be offered, the actual interest rates rather depend more closely upon your credit rating and FICO score. Debt analysts look at more than just the score itself, of course. Borrowers who have let debts be discharged (a governmental stipulation that allows corporation to declare debts essentially unrecoverable, though still legally binding, and thus take advantage of the tax breaks surrounding) may have surprisingly decent scores yet be unable still to attain a decent loan because of the associated notes. Nevertheless, as a rule of thumb, just assume that the lower the mid-score (consolidation companies shall pull reports from all three credit bureaus and throw out the highest and lowest numbers) the higher your interest rates shall inevitably be for the final loan.

To a certain degree, the rates you receive from debt consolidation can be somewhat altered regardless of credit scores through the amount of fees paid initially or added to the back end of your loan, but be careful about trying to get clever with professional financiers. Many of these reductions in rate – especially if they are combined with extended terms – will end up only costing the debtor more money in the end. Use one of the on-line debt calculators or speak with a financial analyst unaffiliated with the consolidation company you have been working with to fully understand what ever the supposed discounts will actually entail over the course of the loan and how much additional interest will be added on to the total balance. Remember, while many of the rate reduction programs are to the benefit of the debtors, the firms offering the consolidation yet expect to be paid, and one has to always investigate the worst potential of every possibility for anything regarding your economic future. Even the best companies and friendliest loan officers shall expected to be paid, after all. Debt consolidation should not necessarily be a scam, if you are dealing with reputable companies, but, at the same time, do not mistake the consolidation firm for a charity operation. To repeat ourselves, there are many different forms that debt consolidation may take, and one should never underestimate the depths to which supposed consolidation firms shall sink in their clamor for desperate borrowers.

As an example, many credit card companies will try to tempt you into a form of low interest consolidation by transferring balances, but this rarely works out well for the consumers. The initial interest rates almost always go up – almost always, for that matter, by double digit leaps and sometimes only months after transfer – while the terms essentially assume that delinquencies will occur. Above all else, make sure you do not get wrapped up in one of those payday loan schemes. As their amateurish commercials (comically preying upon the dim hopes of poor debt-ridden souls) should make clear, these loans are the last refuge of the most desperate borrowers and feature interest rates as high and terms as injurious as the law would allow. Much as they may advertise their services as a temporary band-aid to smooth over a spot of misfortune, too many debtors in actuality find themselves unable to pay back the weekly vigorish and find themselves with even greater obligations that helplessly snowball. No matter how much you think you may need the money this very moment, do try any other possible source – from family to employers, whatever the embarrassment – before surrendering your financial security to the naked greed of the worst sort of moneylenders.

Lender’s insurance is another scam intended primarily to defraud the more desperate borrowers newly learning about debt consolidation. Over time, the lender’s insurance can add a large burden to you and your family, but, buying the insurance – or deciding not to buy it – will have no effect on your ability to get a loan. In fact, with the exception of mortgage insurance (which is not actually insurance), it is illegal to require insurance as a condition of getting a loan. Always be aware of all of your legal options and requirements and always make sure not to be intimidated into accepting contractual terms that might harm your finances. If you are taking on the responsibility of a ten-year loan, there is no monthly cost that is too small to matter. Start thinking of a decade as one hundred and twenty months. A fifty dollar monthly fee will come out to six thousand dollars! Any ten dollar fee, even, would be better viewed as twelve hundred dollars over the life of the loan. Have you ever felt like you had an extra thousand to spare for services you’ve never before heard of and do not completely understand? Of course not. The protection offered by credit insurance is minimal at best and usually not worth the egregious costs it would impart to you through the terms of the loan. Borrowers need to seriously ponder over the importance of such elements before signing any papers.

At the very least, whenever faced with these sort of add-ons to debt consolidation packages, you should do your research before simply listening to whatever the nice man in the expensive suit has to say. Try to put a monetary value on the protections offered by insurance, and, once you have fully understood exactly what they will and will not do, weigh them against the additional monetary hardships that the protections would cost you over the years. Above all else, do the math. Car insurance makes sense because it will protect you against sometimes catastrophic damage and injury, and, as compared to a relatively small monthly payment, one can hardly argue against. Chances are, you won’t get in a terrible car accident any time soon, but the insurance proves its worth because the financial cataclysm of such a crash would be more than any individual could be able to bear. But ask yourself: is the same situation true of credit insurance? Credit insurance more often preys on your fears to extort money from you, but this system often offers little in return. Don’t fall for the credit insurance, and, more to the point, you should question any debt consolidation company that continues to push such an additional cost for so little reason. Credit insurance is one of countless components to debt consolidation programs with demonstrably negligible value that these companies and their salesmen tack on to the larger program for nothing more than a greater pay day.

Still and all, there is a point to debt consolidation when done correctly. Borrowers must choose which consolidation program will be the best fit, still. Consumer Credit Counseling options have been largely abandoned by reputable debt advisers in recent years after it was discovered that most of these companies have accepted payments from the credit card firms they were supposed to be working against. Debt settlement negotiators, on the other hand, have grown more and more popular of late. Like most of the consolidation firms, they’ll take on to their own books their clients’ debts once accepted (which is hardly a fait accompli; borrowers must demonstrate both a willingness to cut back spending and a capacity to earn sufficient income to repay loans within five years) and then duel with the credit card conglomerate representatives with the debtors’ balances as prize. Believe it or not, successful debt settlement firms – these counselors are actually certified by a national board – can cut their clients’ overall debt load by as much as fifty percent through initial negotiations. Remember, though bankruptcy remains a horrible corrosive faux solution for most borrowers to have enjoyed employment over the past few years, Chapter 7 debt elimination remains a frightening option for every lender, and, because of this, debt settlement techniques have been proven to attain seemingly miraculous results for their debtor clients.

There remains a point to debt consolidation, to be sure. With many of these programs – again, debt settlement firms should be looked at most favorably – there are benefits to be found. Of course, even debt settlement isn’t perfect. While the effect upon credit reports cannot compare to the ravages seen once Consumer Credit Counseling or bankruptcy protection has been recorded by the three credit bureaus, any settlement notation still does lower FICO scores for a brief amount of time. Nevertheless, should you genuinely need the services of debt consolidation and find a reputable company within your community, it wouldn’t make any sense not to at least investigate the options providing they offered free consultations. For that matter, many of the more legitimate debt settlement and debt consolidation firms are now available through the internet and can provide their assistance remotely. There’s never any harm to checking what’s out there once you’ve realized that your debts must be dealt with. For all the mistakes and malicious business practices that we have tried to illustrate, your authors do recognize the importance of debt consolidation for many families that have nowhere else to turn. By all means, do look into debt consolidation. Just take every last measure to ensure debt consolidation is the right thing to do.

Why So Many Debt Consolidation Clients End Up Filing Bankruptcy

In my years of experience practicing bankruptcy, I have seen clients file bankruptcy cases for many different reasons. But, for me, the most frustrating trend is the very high number of clients who seek bankruptcy advice after working with debt consolidation companies. Almost every week I consult with a family who has spent years paying thousands of dollars in a debt consolidation plan without ever freeing themselves from debt. After all the time and effort put into the debt consolidation plan, they end up hiring my office to file their bankruptcy case anyway.

Seeing so many clients struggle in these programs made me realize that most people do not have a clear picture of how debt consolidation works. Most people believe that bankruptcy will ultimately destroy them financially, and go to great lengths to make sure that they avoid bankruptcy at all costs. Unfortunately, debt consolidation can harm your credit score just as much as bankruptcy in the long run – without getting rid of all your debt.

This article is written to explain how debt consolidation works, and why many clients would be better off filing for bankruptcy instead.

How Debt Consolidation Works

When you sign up to do debt consolidation you must immediately stop making payments on all of your unsecured debts (ie. Credit cards). The debt consolidation company will then have you make a monthly payment into a trust account. The idea behind debt consolidation is that you build a pool of money in that bank account. Once the pool gets big enough, the debt consolidation company starts to negotiate and pay off of your debts with those funds.

What Debt Consolidation Companies Don’t Tell You

What debt consolidation companies often don’t tell you is that each month you don’t pay your credit cards, your credit score takes a hit. If it takes two years to save enough before the pool gets big enough to start negotiating your bills, then your credit score has been consistently declining over that two year period of time. Also, debt consolidation companies don’t have the power to stop your unpaid bills from filing a collection lawsuit against you. If you get sued for non-payment while you are trying to save enough to start negotiation, your credit takes an additional hit from the lawsuit and a judgment could be entered against you, dropping your score further. Once you have been sued and the collector has a judgment against you, that collector can start garnishing your wages and levying your bank accounts. Debt consolidation does not have the power to stop garnishments or levies either.

Debt Consolidation Costs a Lot Over Time

Most of debt consolidation companies get paid by taking a percentage of the monthly payment that you put into the trust account. Taking 10% of the monthly deposit you put into the trust account is not uncommon as a debt consolidation fee. Practically speaking, the longer it takes you to save up a pool of money, the more debt consolidation companies get paid. Debt consolidation companies also cannot guarantee how long it will take to negotiate your debt. If, after two years of pooling money, the credit card companies won’t settle for the amount that you have pooled, then it’s back to depositing more money into the trust account to try and pool a greater balance, all while the continuing to not make payments on your unsecured debts and seeing your credit score decline.

Who Debt Consolidation Works Well For

This is not to say that debt consolidation is always a bad plan. For people who have access to a pool of money to start out (such as an inheritance or gift from family) debt consolidation makes sense because you should be able to settle your debts quickly without missing many months of credit card payments. If you don’t have to pool money over a long period of time, then you can also save a lot in consolidation fees. When you start out with a pool of money to place, the debt consolidation company can begin negotiating your debts immediately so that you have less time you missed payments on your credit. Consolidation may also be appropriate for people who have a lot of extra income each month, so saving a pool of money can be accomplished easily. The problem is that most people who go through debt consolidation do not fit under this category.

Why Bankruptcy May Be a Better Alternative

Most clients who end up hiring my office after attempting a debt settlement program have said that looking back, bankruptcy would have cost them a lot less, been completed faster, and would have gotten rid of all their debt promptly. They often regret not consulting with a bankruptcy attorney early on to understand how bankruptcy may be able to assist them. In speaking to bankruptcy clients who attempted debt settlement in the past, there are some common reasons why bankruptcy was a better alternative for them in the long-run.

You’ll Know Exactly When You’ll Be Debt Free

When you hire a bankruptcy attorney to file your case, a reputable attorney will be able to tell you exactly how long it will take to complete your bankruptcy case. Under bankruptcy rules, the debt you owe will be considered wiped out as of the date your bankruptcy case is filed. This means that as your case moves through the court system, you are not taking monthly hits to your credit while you are waiting for the case to be approved. Your credit score will take the one-time drop due to the bankruptcy filing, not a lengthy downward spiral with no definite end in sight. As soon as your case is over, you can immediately begin the process of rebuilding your credit.

Bankruptcy Stops Lawsuits, Bank Account Levies, Garnishments and Foreclosures

The filing of a bankruptcy case will immediately stop collections lawsuits against you. It will also stop bank account levies, garnishments being taken from your wages, and foreclosures. The ability to stop these legal actions against you comes directly from a US Bankruptcy Court Order giving you automatic relief from your creditors. If a creditor continues to pursue collections against you, then you can petition the Bankruptcy Court to assist you in getting relief from the harassment.

You Have a Court Order Protecting You From Creditors in the Future

One bankruptcy case will take care of all of the debt you have. You do not need to approach every individual creditor to separately negotiate your debts. In the event that you have trouble with a creditor in the future, you have a court Order that formally discharges your debt. If a creditor refuses to acknowledge that their debt was wiped out in bankruptcy, you can petition the United States Bankruptcy Court to assist you in enforcing your court Order.

You’ll Know the Cost Up Front

All attorneys are required to provide their clients with written fee quotes at the time you hire the attorney to take your case. This means that you will have a written agreement with regard to the amount of fees that you will have to pay. Knowing exactly how much your case will cost means that you can begin saving to pay your attorney’s fees immediately. You can also conduct a cost-benefit analysis to determine if the bankruptcy attorney fees are worth the amount of the debt you are getting rid of.

You Can Confirm that Your Attorney is Reputable

Bankruptcy attorneys are regulated by the State Bar, meaning that they are held to ethical standards, reasonable fees, and have been licensed certifying competency in their field. When you hire a bankruptcy attorney, if they do not deliver on their promises, you can report them to the State Bar for misconduct. Also, even before hiring a bankruptcy attorney, you can view their profile on their State Bar website to confirm that they have no history of complaints against them from past clients. There is no similar agency governing debt consolidation companies.

What You Should Know About An Unsecured Debt Consolidation Loan

What are Unsecured Debt Consolidation Loans?

An unsecured debt consolidation loan is the unsecured way to combat with your unmanageable debts with proper monetary support at the right time. Consolidating a debt means reducing various bills and monthly payments into one affordable monthly payment so that you can pay off your loans, credit cards, store cards or other debts. Unsecured consolidation loans are intended to please creditors by paying all your previous pending loan repayments off and to empower you to gain some financial independence back into your life. Anyone taking on an unsecured debt consolidation loan should be very comfortable in their lives in regards to any health issues, loss of job or any other unfortunate financial surprises that would remain able to make the payments for some time on a new debt consolidation loan.

Several benefits to Unsecured Debt Consolidation Loans?

Unsecured debt consolidation loans are granted by banks and other financial institutions. Unsecured debt consolidation loans are available to borrowers at competitive interest rates which may be slightly higher in comparison to secured loans, but their faster approvals makes them a perfect solution to possibly end your debt consolidation needs. This is definitely useful information for the good credit candidates but unfortunately many of people who need to consolidate their debt do not have the credit score and/or income to qualify for a loan although the debt can be paid back in full through credit counseling if that is the option you chose to take. There are many debt management techniques for several solutions available to help you to recover from debt such as; budgeting, debt consolidation or debt negotiation to name a few to consider.

Debt Management Programs that deal with unsecured debt consolidation loans may be able to dissolve your debt in 3 to 5 years, whereas you might be paying a secured loan off for 15 years or more. Make sure to keep in mind if you are taking a debt consolidation loan and clearing off all your debts your problems will not disappear overnight this is just a means to helping you. Unsecured debt consolidation loans merge all your debts into a single monthly payment of reduced amount. The alternative to paying your bills with high interest rates is that you could find yourself spending a fortune on making interest payments each month, with each of the creditors taking a chunk of your repayment by way of interest, but you could also find that trying to juggle a variety of repayments could become very confusing which could affect your credit rating.

Unsecured debt consolidation loans do not put forth to any assets, and these are ideal for those that do not own their own home, or do not wish to put their home at risk. Unsecured debt consolidation loans are perfect for tenants or renters who do not have any property to keep as a security against the loan. Ultimately your decision to choose debt consolidation loans or a consumer credit counseling program to consolidate credit card debt or any debt should be based on your own personal financial situation and what you can handle.

Unsecured debt consolidation loans that have low interest rates give you the consumer an advantage with saving your hard earned money, which you can be used for other potential purposes. Depending on whether you take out a secured or unsecured debt consolidation loan, some of your unsecured debts may become secured debts so keep that in mind when evaluating your debt situation. Also people with bad credit who are in need of debt consolidation have three basic options to consider: a secured debt consolidation loan, an unsecured debt consolidation loan, or enrollment with a debt consolidation company. Choose the best option to fit your financial needs by starting to rebuild your credit history and hopefully reviving your life to avoid anymore stressful credit or debt downfalls.

The Tricks of Debt Consolidation

With debt becoming an ever greater problem for American families, there are still many households either avoiding the situation entirely or falsely believing that things will turn themselves around. Purposefully ignoring bill collectors or pretending that something will just suddenly come up to remove the consumer debt that has been accumulating on their ledgers for an extended amount of time could only be deemed foolish, but we do understand the temptations that lead people to tackle the credit card burdens that have amassed through what, after all, has been their own efforts (or lack of such). Nobody wants to surrender control of their budget and short term financial destiny to outside assistance from strangers, but, at the same point, you have to take a serious look at your obligations not only as they stand now but over the long haul. This is where debt consolidation may be a genuine solution for you and your household. At the least, you owe it to yourself to give debt consolidation a studied appraisal to decide if the programs could have some benefit.

Think of it this way. How do you want your life to look over the next two, five, ten, even twenty years? Do you still want to be paying off today’s debts decades from now? Of course not. This is absolutely the worst possible scenario – more destructive in the long run even than Chapter 7 bankruptcy protection. The longer you postpone a debt, the more you are giving up in money lost to compound interest rather than paying off the principal of your debt. When you take out short term consolidation loans, on the other hand, most of the money you spend upon the program is going toward the actual debt instead of the creditors’ pockets. While the debt consolidation approach may require a temporarily harsh sacrifice, shorter term loans will help to get you out of debt trouble with much less expense over the course of loan when compared to simply maintaining the minimum payments. There’s just no way for ordinary consumers to manage truly large debt burdens spread among a number of different credit cards or accounts without some form of debt consolidation.

Again, as we’ve said, it is more than reasonable for borrowers to insist that they can take care of their own debt by themselves without resorting to consolidation techniques. Indeed, one of the reasons credit card companies have been so successful in creating the modern society of revolving debt has been the sheer powers of abstraction needed to fully understand precisely how difficult it would ever be to better your position without greatly changing the framework of your financial obligations. Nevertheless, the magnitude of debt management within a better existence should not be diminished. Instead of putting food on your creditors’ tables, you’ll lead yourself into a position where you can improve your own chances for success and use all that you earn to help your own family struggle through our uncertain economy with some degree of security. By taking out the right sort of debt consolidation loan, you are giving yourself the opportunity to renegotiate the terms of your loan payment in a way that shall prove far more beneficial for all future endeavors. When working with the right companies and agreeing to loans that have the right terms, debt consolidation will allow you to think not just about next month, but also to realistically plan out the rest of your life.

Of course, things are a bit more complicated than simply undertaking an examination of the debt consolidation alternatives. It’s highly important when looking at all of the varied consolidation loan options to find out what approaches are likely to be the most beneficial for you and your family, and this can be a trek that takes months to be fully realized. For one thing, there are just so many variables to be studied at before even the most basic fundamentals are addressed. Personal loan consolidation programs are heavily dependent on credit history, for example, and your ultimate interest rates will to a large degree be dependent upon the FICO scores offered by the three main credit bureaus. Employment history is also a good determination of what sort of debt consolidation program would allow admittance. For debt settlement negotiation, to take just one example, the specific lenders and nature of your unsecured debt – above and beyond the credit and income qualifications – could well make or break debt settlement as a workable notion for your household. Within the boundaries of an article such as this, it’s just too difficult (and, for your authors, ultimately irresponsible) to attempt to accurately predict which form of debt consolidation could be the right fit for your own family. In the following piece, we merely wish to show a few different tips and strategies about the larger consolidation approach so that those interested borrowers may have some sort of map through their own hard fought discoveries about the realities of debt consolidation.

It is certainly true that the process of searching out debt consolidation loans and learning about the various benefits and drawbacks of the consolidation process could seem daunting to consumers who have never before bothered (or, in many cases, needed) to take the time to learn much about debt management and the various forms it may take. If you are worried about your credit history and just want to make all of the bill collector calls go away, it can seem all too tempting for borrowers to simply take the first loan that’s offered in order to solve short-term problems. Still, this has to be said to be one of the most common mistakes you could make. More importantly, it’s a mistake that could have destructive effects far into any unwary borrower’s future. The best thing to do in any of these situations is just to stop, take a deep breath, and understand that you don’t have to agree to any loan consolidation program right away. You will almost certainly be able to get a better offer from other debt consolidation specialists if you take your time and investigate every last alternative. For this reason, you want to always make sure to wait until the last possible moment to commit to a debt consolidation program.

To paraphrase a truism from carpenters and tradesmen, analyze twice and sign once. As every borrower should know, the lenders’ quoted prices may be quite different from what actually turns up on the eventual papers, and, if you should remain dubious (and, trust your authors, you should remain dubious) that the consolidation quotes will barely resemble what you will see once you actually apply for the loans, the only logical thing to do is to compare prices among multiple lenders. The debt consolidation professionals that you work with will argue this decision, to be sure, and they will ask, with no small amount of practiced guilt projection, that you leave everything within their hands. An experienced debt consolidation specialist will make you leave their office feeling like a discussion with one of their competitors would be somehow cheating, but this is not infidelity. A serious attempt at debt consolidation, not to exaggerate things, could make or break your household finances for up to a decade afterwards and, with egregious malfeasance on the part of the consolidation firm, perhaps even longer. The only person who really understands your own best interests is you, after all. This may sound obvious, but many borrowers considering debt consolidation somehow forget the practicalities behind the procedure, and, in order to make an enlightened choice, you need to really understand what options are on the table. By comparing offers from a number of different lenders, you can only then allow yourself an accurate picture of what options have been made available. Furthermore, only then can you make a truly informed decision about debt consolidation that will best help you and your family prepare for the future come what may.

Remember, the real perspective to look at as regards debt consolidation should always involve the long game. You should not be seeking to get ahead for just the next month. That’s what credit card companies count upon. When considering consolidation programs, you should be looking to decide on the best option that will let you get ahead in life through eliminating the debts that hamstring household finance without artificially crippling any larger dreams or unfairly limiting your family’s comfort. For the sake of argument (one offered hourly by telemarketers, we should add), let’s say that someone offers you the chance to reduce your monthly payments by half. This would mean that, instead of paying five hundred dollars a month you would only be paying two hundred and fifty dollars, but, in order to do this, the debt consolidation company may be extending the terms of your loan from five to fifteen years. Let’s even assume there shall be a significant cut in interest rates for the time being. When you calculate the actual terms of the loan, you will end up paying a good deal more money – perhaps twice as much, depending upon rate and amount – than you would have had you left things alone.

This is why it can be so difficult for those borrowers who’d never pretended to be financiers to understand just what the greater consequences of such consolidation loans may be. In the last case mentioned, you would spend far more in interest through the course of the consolidation, and, even without the costs of said consolidation added alongside, what you’d imagined to be a positive action will leave you even farther behind in debt than what you could have achieved by merely paying every dollar toward eliminating those burdens. With a good consolidation loan boasting proper terms, you should not only be reducing those monthly payments, you would be decreasing the total amount of debt that needs to be repaid through the entirely of the loan. You work hard for the money you earn, we assume, and you do not want to throw it away simply because you feel an inexplicable loyalty to one smooth talking consolidation salesman. Read the details carefully for every document, pay attention to the fine print, comparison shop with competitors in the industry, and always make sure that you know what you’re signing on for before they hand you the pen. In the end, the future is always up to you, and there is no reason to blame anyone else for your laziness or sloppy analysis if your debt consolidation should be handled poorly.

We cannot say this too many times: always know precisely what you are signing. It’s hard to even estimate how many correspondents have written us complaining that they attached their names to contracts without taking the proper amount of time to understand the documents completely. In times such as these, particularly when debt collection agencies are breathing down your neck and even the minimum payments of credit cards seem depressingly our of reach, it may seem easy to just sign your name to anything that seems at first glance like it might solve all of your problems. No matter how convincing the debt consolidation professional may be within his beautiful office and how articulate he may be during his glowing presentation, you cannot just take his words at first glance. Look twice, look a third time, look as long and as hard as you need to until you understand every single word of the debt consolidation contract. Don’t be afraid to ask for clarification from other consolidation specialists at the company you have been working with or even to bring the terms to a professional analyst at a neutral firm.

Remember, this is your life, and you need to have a clear picture of what the benefits and responsibilities of this debt consolidation program are going to be. If the consolidation counselor seems like they’re glossing over the details when explaining the loan, make sure to insist that any questionable aspects of the program are explained in full. If you don’t understand any part of the contract, ask about it and continue asking until you feel that you thoroughly understand every element of the consolidation. Force the consolidation specialists to go over everything in plain language without double talk, and ensure that even the smallest change has been recorded in written documents for later use. The contract is the heart of any financial agreement, especially debt consolidation, and you and your household must recognize and come to trust each and every line of the papers being signed in order to prevent troubles down the road. Think of debt consolidation as a sort of marriage between the borrower and the debt consolidation company, and, even more importantly, you should think of the initial consultations as a flirtation with you and the company circling the room and deciding upon mutual interests. In this way, you should not overly blame the consolidation officer for overly praising the virtues of his craft. Obviously, you want anyone who would take over your consolidation to believe in what they are doing and to believe their attempts to help the borrowers will meet with ultimate success, and, at the end of the day, no debt consolidation specialist will genuinely understand their potential clients’ situation until they have gone through all possible scenarios after long nights studying credit reports and paperwork.

Honestly, it just doesn’t matter that much what the debt consolidation company quotes you before your application is finalized. Legally, the only thing that will be looked at will be the contract they offer after (and only after) you have already applied and the final papers have been drawn up. Now, that contract should be very closely analyzed to see if there are any differences between the quote and what you were originally offered – as well, obviously, as whether these changes were mentioned by the company. To be sure, sometimes these differences are due to aberrations in your credit record that you might not even have known about. It could even turn out that there are discrepancies in your record that you need to clear up before re-applying, and the discovery of such errors will make quite the beneficial difference to your finances over the long run. However, under any circumstances, you should never assume that the rate you were first quoted before applying will be the same one that you are offered after the consolidation process has been completed. When the differences appear, you must make sure to ask your lender the reasons behind them, and, if you have done the smart thing and applied with multiple lenders to get a comparison rate, you should see what the other companies are now offering.

Also, while much of the specific jargon may beyond the ready capacity of the average borrower, much of the analysis can be done by the consumer him or herself. Any reasonable creditor should offer in good faith the entire cost of your ultimate financial burden, but, as seemingly with everything involving the consolidation process, one cannot always depend upon the supposed debt professionals. Nevertheless, once you have the basic information, you should be able to estimate the total with the assistance of one of the debt calculators available from any number of web sites. These calculators found on the internet allow a comparison of prices with the debts you hold at present and with what a company may charge for debt consolidation, but we strenuously urge borrowers to avoid those debt calculators found upon web-sites attached to creditors. When a lender’s involved, the numbers somehow tend to be a bit skewed; oddly enough, the creditors’ calculators often estimate suspiciously low for their own offerings while their competitors’ numbers range higher than average. This isn’t always true, of course, but make sure that you’re able to enter the interest rates and associated charges manually. From there, you should be able to just multiply the monthly payment times the length of the loan plus whatever costs (traditionally called points) incurred from the lender, and that’ll be roughly approximate.

Honestly, regardless of the good faith estimate, it’s a good idea for borrowers to give this sort of thing a try. Even for the most trustworthy loan officers, mistakes are made, and debtors should not leave anything to chance.

This does deserve to be underlined. No matter how generously your friends and family have recommended a specific consolidation firm, you should always keep in mind the importance of investigating every debt management company before first meeting with them. The Better Business Bureau keeps records of customer complaints for a number of years, and it is always a good idea to check with your community’s Chamber Of Commerce to see if they have anything to say about the company in question. Also, be sure to discover if they are part of any larger group or maintain any professional affiliations. Many of the more legitimate debt consolidation service – debt settlement negotiation counselors, in particular – have a certification process, and you should make sure that the industry’s national board has some awareness of the company in question. As well, the Federal Trade Commission and similar governmental authorities are funded by your tax dollars to vouchsafe the consumer’s welfare in such matters, and, while they are not always up to the task (just because they have not heard anything bad about the consolidation firm shouldn’t mean that the firm itself is beyond dispute), it’s never a bad idea to check. More importantly, you should understand your responsibility as a citizen to inform the Federal Trade Commission and Better Business Bureau and all such bodies about any malfeasance or incompetence or outright fraud suspected through the consolidation process to better protect other borrowers from unsavory business practices.

Even the best of companies will still unknowingly hire loan officers and counselors and other debt specialist that think nothing of unfurling predatory schemes hardly in the borrowers’ best interests to turn a quick buck, and, while they will inevitably be discovered and dismissed from a profession whose lifeblood is word of mouth, a bad sort inevitably sneaks and lies their way into otherwise trustworthy firms. Check and double check every word of every line of the consolidation documents – even, if financially possible, have them analyzed by a neutral professional – before ever signing papers for your loan. Never stop looking for the best possible deal. Sometimes lenders will offer you fairy tale rates in order to gain your trust and then add additional fees and elevated interest to the final contract without telling you about them. Your only source for the deal you are going to get is the contract that is waiting for you sign. Whatever you have been told, your only real offer is the offer that’s set down on paper, waiting for your signature. Despite whatever your initial gut feeling may have been, the only thing that you should trust is the document that they put in front of you. As they say, a verbal contract is not worth the paper it is printed on, and promises and best case scenarios offered to land the client’s business should not even be considered in bad faith. This is the nature of debt consolidation and any sort of competitive financing. No matter how much you want to believe that a person’s word is their bond, in the legal world the only reality comes from the documents that are written down on a piece of paper. More to the point, no matter the relationship you may have developed with the debt consolidation professional, if there’s anything on the contract that’s different from what you expected, you shouldn’t hesitate to re-open negotiations and work out the best deal for you and your family.

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