While there are a number of nonprofit organizations that are set up to provide honest debt counseling, there are just as many if not more that are simply looking to turn a profit. Unfortunately, these ‘debt counselors’ are usually nothing more than loan sharks or affiliate sites online that want to earn a nice juicy commission off the loan they sell you. Here are a few words of advice gathered from bankruptcy lawyers who are in the business of protecting consumers from losing everything they have worked so hard for all their lives.
The Truth about Debt Consolidation Loans
One of the ways in which less than reputable debt counselors will try to take advantage of you is to talk you into a debt consolidation loan. There are times when these actually may be a good idea, but if you are in serious trouble financially it is doubtful that you would qualify for a loan that would be advantageous to you. For example, some credit card companies offer to let you transfer all your other outstanding credit card debt for 0% interest. Be watchful of these offers because that zero interest is only for a short period of time and you may end up paying higher interest when the introductory period is over.
Home Equity Loans Can Cost You Your Home
Another type of loan that will often be recommended by the so-called credit advisors is a home equity loan. Bankruptcy lawyers are the first to tell you that these loans are dangerous. The reason for this is simple. If you owe unsecured debt such as credit card debt, the only thing they can do is report you to the credit bureau, perhaps sue you in court and maybe garnish your wages if they are successful in court. Unless you owe tens of thousands of dollars, most creditors won’t go through the trouble.
They could sue you and they could win, it is a very real possibility, but they cannot take your home. If you have out of control debt but have equity in your home, it is not advisable to try to pay it off with a home equity loan. What happens if you can’t pay the loan? The mortgage lender can foreclose on your home. You will still have all that debt in one loan but you will be homeless as well.
Debt Settlement Programs to Watch For
Most debt settlement programs charge a fee for their services. They advertise debt counseling as being free, which by law it is supposed to be. Where they get you coming and going is in the fees they charge to settle payments for you. These types of organizations offer to negotiate settlement with your creditors and they assure you that they can get your balances reduced. Perhaps they can, but they don’t tell you that any money they collect from you pays them first for their services and once their fees are met they begin paying your outstanding debts.
If you think about this logically, you end up paying more than you owe in outstanding debt. It is far better to call your creditors directly to see if they will negotiate a deal or payment plan with you and then stick to it. Don’t’ turn your money blindly over to a third party without trying to first settle your debts directly with the creditor. In the end, it is ok to speak with credit counselors. Listen to what they have to say, but keep in mind that most of these organizations are out to make a profit from ‘helping’ you settle your debts. As the old saying goes, “Don’t jump from the frying pan into the fire.”