Profit and Non Profit Debt Consolidation Company
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How many times have you seen that commercial on television or heard it on the radio while you were sitting in rush hour traffic on the interstate? Bad credit is big business for an ever increasing number of companies across the United States and while they promise you the world, you should know exactly what they can and can not do before signing on the dotted line.
The prevailing majority of bad credit debt consolidation companies are profit making organizations and as such they are “in it for the money”. Here’s a quick rundown of how they operate:
1. The debt consolidation counselor evaluates your existing financial situation including your credit history, existing debt and even your income.
2. When you enter into an agreement with the company, they will begin speaking with your creditors directly on your behalf, explaining who they are and working with them to lower your interest rates and stop penalties for past due balances and late payments.
3. You will send a monthly payment to your debt consolidation company who in turn will pay each of the creditors.
NOTE: You will still receive your monthly credit card statements, and you should always check them carefully to ensure that your debt consolidators are paying them the right amount and that no additional fees are being accrued.
How does the bad credit debt consolidation agency get paid? In most cases a percentage of your monthly payment is taken off the top as the agency’s fee. This fee will vary depending on the company you work with, but it can be as much as ten percent (10%) or more.
Do I Have A Choice?
It is easy to feel helpless and defeated when the bills start to pile up and you just can’t see the light at the end of the proverbial financial tunnel. Even if your situation makes you feel as though using a debt consolidation agency is your only option, let me assure you that you do have a choice, no matter what a salesperson may tell you to the contrary.
There are non profit credit counseling agencies whose sole purpose is to help people who are having money issues. In some ways they work much the same as a for profit debt consolidation company but with a few major differences. A non profit counseling agency will evaluate your overall financial picture and offer suggestions for ways to improve the situation. They will help you to understand how you got in to the position you are in and then assist you with creating a budget that you can live with. In some cases they might suggest ways for you to reduce your monthly expenses. For example, my credit counselor years ago suggested that I purchase a $12 coffee maker instead of spending two or three dollars a day on coffee during the course of a day. She showed me how at that rate I would pay for the coffee maker in the first week, and have an extra $45 at the end of the month. At times they may refer you to resources in your community that may be able to help.
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Tips to avoid debt consolidation scams
How can you tell a good debt consolidation company from a scam company? There are certain tell tale signs that you can look for. Research is the best option to find out about a debt consolidation company. You may further take a look at the following tips:
• Research is the best way to find out. When you have narrowed chosen a company then check if the company is legitimate or not. You may check with your State Attorney General’s Office (AGO) as well as the Federal Trade Commission. You may also check with the Better Business Bureau to find out if there is any complaint against the company you have chosen. Even if you have looked for online debt consolidation make sure you have enough information about the company.
• The debt insurance company would only ask for your creditor’s name(s), balances and interest rate. If the company is asking for your social security number or any other personal information, beware!
• All debt consolidation program would offer the same rate because they receive the same deal from the credit companies. If you get to pay lower monthly payments, it might be because your creditor is charging a higher rate of interest.
• Look out for any hidden charges. Many debt consolidation companies might suddenly ask you to pay a service charge in the middle of their service. So beware of extra fees since these companies charge you usually 10% more than what they send to your creditors and in many cases they also get a discount back from them.
• Do not sign a debt consolidation program immediately after hearing one. Take your time (not too much) to decide on a program. Think over it and then go back to sign on the documents if you want to.
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Knowing Debt Consolidation Terms
The consensus is clear that most people believe that eliminating debt is a highly problematic and painful job. It is important to understand that that there are solutions to this nagging problem of debt.
When it proves too difficult to alleviate your debts using a budget and through trimming your expenses, you may need to search for a different solution. You might consider consolidating your debt. The terms below are just a short list of terms associated with debt consolidation. If you want to get debt free, you should probably get acquainted with them.
The best place to start is by defining debt consolidation. Basically, this term is used to describe the program whereby you combine your various bills into one payment so you can pay off the debt easier. This also means that any late fees are cut out and reduce the interest rates on the payments.
Next, there is unsecured debt. It is the form of debt that has no collateral. The top examples include credit cards and hospital bills. Items like houses, boats, motorcycles, or other material items are not considered unsecured debts.
When you see the term home equity loan, you have a type of loan that is made possible by using the equity in your home. These loans can be used to pay down debt or improve the home. It is important to note that if you make improvements that increase your property’s value, you could lower the interest rates you would have to pay. If you use the loans as a means of debt consolidation, you should expect higher interest rates on monthly payments.
Debt reduction is a term that involves the use of specific reduction services. It is used by those who have bad credit to get a handle on their debts. Debt reduction companies counsel their clients to cease payment to creditors for about six months. During this time, money would be saved in order to present a bargaining tool to lower payments overall. By using debt reduction services, you are essentially destroying what remains of your credit rating. This alone should relegate debt reduction to a extreme measure.
The term settlement describes the practice of certain creditors to accept a set percentage of the outstanding debt to close the account when full repayment is no longer possible. In many cases, the creditor is interested in obtaining some measure of repayment rather than receiving nothing. When describing its application with unsecured debts, it may be best to use credit cards as an example. The creditor may settle for receiving 30-70% of the total balance. This form of settlement will damage your credit since those accounts involved with include a note stating, paid as agreed. This is another way of saying non-payment.
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Some Prons And Cons Of Debt Consolidation
When creditors come knocking at your door demanding for their money, you could consider debt consolidation to settle the debts. The best thing with these companies is, all your bills will be put into one and you will only have to make one payment every month until the last payment. Your creditors will not consult you any more since the certified counselors will make payments on your behalf.
There are free debt counseling services offered to educate and assist you to choose a method that will suit your situation. You will have a chance of discussing your financial problems with the counselors who will then help you in making a budget that will cut off your expenses. They will help you understand where you went wrong and also give advice to avoid such mistakes in future.
However, you must be very careful because most of the debt consolidation companies will take some percentage of your first payment, increasing your financial difficulties. They may promise to lower the interest rate but, if the loan given will last for four or more years, the total interest rate might be greater than your total bills, increasing your problems. My question is, why can’t you have personal repayment plan and save all that money?
These people could also lower the interest rate for your credit cards and increase the interest rate a few months later. To avoid such problems, you should have a written agreement for permanent interest rate. Personal settlement could be the best option of all since the counselors will assist you make a repayment plan.
Mary Mukami Gachonde Researches and Reports on Finance. For More Information On How To Get Out Of Debt, Visit Her Site At GETTING OUT OF DEBT.
