Debt consolidation is not about adding to your debt. Your debt is not increased. If anything, it may be decreed. Following are five points to consider when your are considering debt consolidation or your financial circumstances in general.
Point One: 25% Debt Reduction
You did not get a good deal without the payment plan you are offered results in a reduction in payment of 25% off the sum total of your debt payments before consolidation.
Hypothetical situation: Take a 5-year loan of $ 100,000 at 8% interest. Take another loan of $ 100,000 at 15% interest. Paying each of these loans individually, the total payments over the period of the first loan will be $ 121,658. For the second loan payments will total $ 196,601. Thus, the total of both loans through their maturity will be $ 315,259. If that total is not reduced to around $ 237,000, you did not get an effective debt consolidation loan.
Warnings: Some debt consolidation firms employ some methods that may fool you. They could stretch out the repayment period so it appears that you are paying 25% off. They could also shove future interest payments into the principle so you do not notice it right off the bat. There are other ways to technically be doing right but obfuscating what is actually going to transpire.
Point Two: Spending Habits to Avoid Debt Problems
If you have piled up debt due to unnecessary spending you need to change your lifestyle. People often think of a credit card as a source of income. Treated this way, a credit card is like an employee whom you pay to let you work for him. Chop up your cards, maybe giving one to a trusted relative or close friend for emergency purposes.
Point Three: No Legal Proceedings
One of the most important points to a client of debt consolidation is an immediate and abrupt end to any legal action: Collections. Lawsuits. Garnishment. This is primary because these actions are the primary reason for the anxiety of the client. Having collectors call you at work and home, calling your boss, etc. is one of the main reasons you are seeking debt relief.
Point Four: No Fees for Debt Consolidation
No one who works for you in a debt consolidation deal should demand any fees whatever. Nominal expenses to cover recording or duplications are acceptable. Lawyer or documentation fees should not be your problem. All fees must be waived or paid by the creditors.
Point Five: No Bankruptcy
No one should insist or ask that you file for bankruptcy, or even consent to file. Personal bankruptcy ruins your financial life in a most extraordinary way for up to ten years. Indeed, personal bankruptcy can be a last resort, but consider alternatives heavily before taking such a drastic step.
Debt Consolidation Last Words
Expert debt consolidation advisers advise those in the market for such a service to stay away from debt consolidation firms that make money off their customers. Their interests are focused on their bottom line, not yours. You should choose the National Foundation of Credit Counselors or similar not-for-profit agency.