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Debt Consolidation - Beware the Catches

Beware of dodgy debt consolidators! Debt consolidators often attract positive attention when you first have debt problems because they give the impression that they will neatly resolve all your debts into an organized and lighter one. Their campaigns make debt relief sound very straightforward. They will simply consolidate all your bills and convert the interest rate to as low as 0%. Unfortunately, many who have fallen prey to them have experiences worse than the opposite of what can turn out to be empty promises.

The usual tendency when folks experience financial crisis is to get loans to cover up for previous borrowings. This being a well-known phenomenon, debt consolidators do their best to attract people into these sorts of situations with debt consolidation loans. These loans promise easy and immediate processing and approval as well as offering lower monthly payments and interest rates. Being close to desperation, many people tend to become easily lured and accept them without further thought.

If these people were to work out how much they actually pay in total, they would be surprised to learn that it is a lot higher. Sure, the monthly payments are lower but this is largely because they are spread over a longer time period. What usually goes unnoticed are the interest rates which are actually higher. In most cases interest rates can go as high as 21% or 22% and these subtly and discreetly suck people dry while burying them deeper into financial debt.

Debt consolidators also commonly assure customers that they will be in charge of everything. They say they will coordinate with your creditors. All that is left for you to do is to make one easy payment every month. However, what happens in reality is that they actually charge for such services by taking hold of about 10% of the monthly payment. This is about $50 for every $500 monthly payment. Instead of this amount being used to significantly reduce the debt, it automatically goes to the deceiving hands of the debt consolidators.

In reality, most of their services are ones which you can do on your own given the correct information. You can yourself negotiate with your creditors to make payments more manageable in the light of a current financial difficulty. You do not need to shell out a large amount for that. Most creditors are willing to bend a little but only if they are aware of the circumstances.

What enables doing the negotiations and payments on your own a lot better, is that certain cases have already been reported where the debt consolidators themselves are making late payments. They regularly request payment from their customers but they often remit them late thus causing the customers more charges which they are not aware of. This will only be added up to the monthly payments unnoticed.

Balance transfer cards are also prevalent these days; these are usual debt consolidation tools. In a similar way, they promise lower interest rates. But you have to note that such low rates are not going to be the case indefinitely. After some months they will increase. Of course, when that happens, you will look for another provider. The network of credit companies sees this kind of activity and considers you a risk, thinking that something else is behind your switching. In this way, your switching may not be approved and you are left without a choice but to hold on to the card and suffer its high rates.

It is obviously better to think of other options rather than resorting to the services of debt consolidators. Home equity loans, for example, are better options because of their low, single-digit interest rates, which are generally tax-deductible. In such cases also, since you do have a home equity, your property may be up for a higher amount of refinancing. In turn, you can use the excess money for settling your debts. You may also try personal loans particularly if you previously had a good credit history. The interest rate may still be high, around 11%, but this generally remains a better alternative compared to the 20%++ rate of debt consolidators.

There are also several other options that you can try. If you want to know more about them, you can seek advice and gather information from certain organizations providing credit counseling. Once you have the information you need, you best deal with the situation yourself. Most debt consolidators have already been proven to be unhelpful so you should not take part in your alternatives anymore. You need not worry about being exposed to harassment, as there are laws such as the Fair Debt Collection Practices Act to protect you.

Now read on for more about selling your assets for debt relief.