Debt Consolidators: Be aware of the tricksters
The main reason you get attracted to debt consolidators is that they promise you a world of benefits. They will narrate how thay can better organize your debts and also provide a lower rate of interest. They make it all look so easy na dstraightforward that you feel like believing them rightaway. However, this is not usually the case and as a result, many have fallen prey to this trick.
The debt consolidators are aware that the normal tendency when experiencing financial crisis is to get loans to cover up for previous credits. They try to benefit from this attitude by promising easy and immediate processing and approval. They sspice it up further by offering lower monthly payments and interest rates. Out of desperate circumstances, people get lured to this sales pitch and agree without second thoughts.
In reality, what these people end up paying is a lot higher. They would be surprised to know this if only they calculate the total payment thay actaull have to make during the tenure of repayment. The fact is that monthly payments are lower because the repayment period is longer. But then so are the interest rates. In sum, you end up paying more over a onger period of time. Interests rates usually hover around 21-22% in these cases. What really happens is that people get trapped into further debt anad are unknowingly inviting a financial crisis.
Another fallacy is the assurance given by debt consolidators that they will be take care of everything. they promise to take up all interactions with your creditors. What they dont tell you is that they will charge you seperately for these services. This is usually around $50 for every $500 monthly payment or 10% of the transaction amount. This is an additional cost on your loan and a hidden one in that. This increases your debt rather than reducing it. This is plain deceit and you can do nothing about it once you sign the dotted lines. .
Bear in mind that most of the services offered by debt consolidators can be done by you. The feeling of convenience and quality service is what you think they will provide. But thats not usually the case. Think about this. Cant you negotiate with your creditors to make payments more manageable in the light of a current financial difficulty? Understand thet most creditors are willing to bend a little if only they are made aware of your situation. All that matters to them is that they get their money back.
Take another case. There have been reports where debt consolidators themselves are making late payments.Although they regularly ask for payment from their customers, they remit late thus playing on interest rates. While they gain in the process, your late payment fees in certain cases add up to the total loan amount. That is an extra you have to bear because of their unprofessional attitude.
Balance transfer option happens to be another debt consolidation tool in disguise. Although they promise lower interest rates, this will not prevail for long. They revise the rates in the course of a few months leading you to look for another provier. However, other credit card companies may not approve of your switchoevr assuming you have a bad credit card history and are not ready to pay on time. You are therefore left high and dry with no option but to stick to your existing company and keep paying higher rates of interest.
Think of better options and avoid the debt consolidator where possible. Home equity loans, for example, are better options because of their single-digit interest rates which are even tax-deductible. You can use the higher amount of refinancing and use the additional money to settle your debts. If you have a good credit history, you can also try personal loans. The interest rates are high from a personal loan perspective, it is usually around 11%. But this is far better than the 21% you would give to the debt consolidator, right?
There are several other options that you can try out. Look out for organizations providing credit counselling. You will get all the information from these bodies. Once you havae teh information, you will be in a better position to decide your future course of action. As far as possible, stay away from debt consolidators. In case you have fallen to their bait, understand your rights by chacking for laws on debt consolidation such as the Fair Debt Collection Practices Act to protect you.
Article by Nakagava Ltd., creator of PiggyBob™, the first truly user friendly personal finance and appointment scheduling software. PiggyBob™ is an extremely convenient tool to help you keep track of your income and expenses, plus a very useful printable calendar to record all important events in your life.
