Debt Consolidation Loans

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Debt Consolidation | Your Debt Options | Common Debt Terms | Financial Services | Debt Counseling Agencies | Credit Repair Agencies | Debt Prevention | Managing Debt | Debt Warning Signs

Debt Consolidation

These questions will help you to review a debt consolidation agency or debt consolidation loan, the services they offer, and the terms of the agreement to which you're entering. Be sure to consider several companies before choosing to do business with any organization.

Questions to Ask:

• Did the seller, ad or telemarketer guarantee your ability to receive a loan or line of credit? Do they require advanced payment? Be suspicious. Legitimate lenders will not "guarantee" that you will get a loan or a credit card before you apply, especially if you have bad credit, or a bankruptcy.

• Did a telemarketer selling this service request a credit card account number, bank account information, or your Social Security number from you over the telephone? This is a red flag! Never give out this information unless you are familiar with the company and know why the information is necessary.

• Did you find advertisements for this service or company in the classified ad section of a newspaper or magazine, or in mailings, radio spots, or on local cable stations? Beware of these companies - they often represent scams, or require you to call expensive "900" numbers to learn about their service.

• Does the company use delivery systems other than the U.S. Postal Services, such as overnight or courier services? This may be an attempt to avoid detection and prosecution by postal authorities.

• Is there an advanced-fee or application fee required, but no supposed "guarantee" of receiving a loan or line of credit? It is an accepted and common practice for reputable lenders to require payment for a credit report or appraisal. You also may have to pay a processing or application fee.

• Does the offer of credit require your verbal or written acceptance of the loan or credit offer? Is the application subject to a check of your credit report to make sure you meet their credit standards? Is the application fee minimal? These are generally good signs of a legitimate loan or extension of credit.

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Your Debt Options

If you are facing large debts and financial difficulty, there are a number of options and resources available to help you.

These options can range from simple solutions, like budgeting, to the last resort option of bankruptcy. Based on your level of debt, your level of discipline, and your prospects for the future, you'll have to determine which is the best option for you.

Self-Help

Self-help may be your best option when dealing with debt and credit problems. Develop a budget to help realistically assess your income and expenses, and to help curb excessive spending. Your public library has information about budgeting and money management techniques. Low cost financial counseling services are also available in most communities. You may be able to contact your creditors directly to negotiate modified payment plans. If your credit history is less-than-perfect, time and responsible money management are your best resources. Be sure to contest any incorrect or out-dated information which may be negatively affecting your credit.

Credit Counseling

If you're unable to resolve debt problems on your own, consider contacting a credit counseling service; they can help eliminate much of the stress of dealing with financial problems on your own. These services will help you establish a debt repayment plan and may help you reduce repayments with creditors. Some credit counseling services charge little or nothing for managing the plan, while others may charge a monthly fee.

Debt Consolidation

You may be able to lower your cost of credit by consolidating your debt through a second mortgage or home equity line of credit. These loans may add up cost-wise, but may alternatively provide certain tax advantages not available with other kinds of credit. This option requires careful consideration, however, as these loans may require your home as collateral.

Credit Repair Services

Credit Repair companies offer help in cleaning up your credit report. For a fee, they can help you dispute incorrect or inaccurate information in your credit history which may be damaging your credit rating. Be aware, however, that no one can legally remove accurate and timely negative information from your credit report. Also, keep in mind that everything a credit repair clinic can do for you legally, you can also do for yourself at little or no cost. Ultimately only time and a conscientious effort to repay your debts will improve your credit report.

Bankruptcy

Turning to a third-party or business that offers help in solving debt problems may seem like a perfect solution when your bills or credit become unmanageable, but you need to be cautious. Before you commit to anything, be sure to:

• Find out exactly what services the business provides and what it will cost

• Get everything in writing; never rely on oral promises alone

• Check out any company with your local consumer protection office and the Better Business Bureau in the company's location. They may be able to tell you whether other consumers have registered complaints about the business.

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Common Debt Terms

Lots of terminology when dealing with debt and debt consolidation - make sure you know who's who.

Debtor

Any person currently using credit cards, holding a personal loan, paying on a home mortgage, or borrowing money from another party with an arrangement to repay credit or loans over a period of time, usually with interest.

Creditor

Any bank, mortgage lender, credit company, retailer or other business extending credit or issuing loans to consumers.

Debt Collector

Any person who regularly collects debts owed to others, including attorneys who collect debts on a regular basis.

Third-party Financial Assistance

Credit Counseling, Credit Repair, Debt Consolidation, or other Agencies offering financial assistance to consumers. Some agencies are for-profit, while others are not-for-profit, often funded by communities, governments, or even creditors.

Secured Debts

Secured debts are typically tied to an asset, like a car for a car loan, or a house for a mortgage. If payments are missed, the lender can repossess the asset. Secured debts are usually not included in credit counseling and debt management plans.

Unsecured Debts

Unsecured debts are not tied to any asset. Examples of unsecured debts include credit card debt, medical bills, signature loans, and debts for other types of service.

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Financial Services

When your debt situation becomes unmanageable, turning to a service that offers help in solving debt or credit problems may seem like a reasonable action. Some things to look for below.

Many debt and credit agencies offering too-good-to-be-true solutions to your financial problems, are just that - too good to be true. Some businesses that offer debt resolution or credit repair plans may charge high or hidden fees and fail to follow through on the services they sell. Others may misrepresent the terms of their service, failing either to explain certain costs or to disclose the complete terms of the agreement.

The following questions will help you to carefully review a company, the services they offer, and the terms of the agreement you're entering in to. Be sure to consider several companies before choosing to do business with any organization.

Things to Consider:

• Check out any company with your state Attorney General, local consumer protection office and the Better Business Bureau in the company's location. They may be able to tell you whether other consumers have registered complaints about the business.

• Any reputable company should send you free information about itself and the services it provides without requiring you to provide any details about your situation. If not, consider that a red flag and go elsewhere for help.

• Don't rely on oral promises. Always get everything in writing.

• Educate yourself fully and use good sense when entering any financial arrangement.

Questions to Ask:

• What services does the company offer, and how will they help your situation?

• What are the costs and fees of the company's service? What is the basis for their fees? Will you be charged anything before the company can/will help me?

• Will there be a formal written agreement or contract?

• Will you be working with agent or several? Are the company's agents accredited or certified? If not, how are they trained?

• Who regulates, oversees and/or licenses this company? Is their company audited?

• Where does the company receive their funding? Are they a non-profit, or for-profit organization?

• Does the company offer educational materials? If so, will they send them to you, or can you access them on the Internet? Is there a cost for these materials?

• After helping you solve your immediate problem, will the company help you develop a plan for avoiding problems in the future?

• What is the company's privacy policy? Can/will they assure you that information about you (including your address and phone number) will be kept confidential?

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Debt Counseling Agencies

These questions will help you to review a debt counseling or debt management agency, the services they offer, and the terms of the agreement to which you're entering. Be sure to consider several companies before choosing to do business with any organization.

Questions to Ask:

• How much debt must you have to qualify for their services?

• How is your monthly payment determined? What if this is more than you can afford?

• How does the company's debt repayment plan work?

• Will the company be able to negotiate with your creditors to eliminate/lower interest and finance charges or waive late fees?

• Which of your debts will qualify for inclusion in the debt repayment plan? Will the company help you plan for payment of debts not included in the plan?

• What happens if you can't maintain the payments and other conditions of the debt repayment plan?

• How will you know your creditors have received payments? Is client money put in a separate account from operating funds?

• Are you able to access status reports on my account? Are they available online or by phone? How often can you access them?

• Who will help you if you have problems with your accounts or creditors?

• How secure is the information you provide to the company?

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Credit Repair Agencies

These questions will help you to review a credit repair service or agency, the services they offer, and the terms of the agreement to which you're entering. Be sure to consider several companies before choosing to do business with any organization.

Questions to Ask:

• What services does this company offer? Is it worthwhile to you to pay someone else to do something you can do for yourself for free? Credit repair companies cannot legally do anything to improve your credit that you cannot do for yourself.

• Does the company promise to remove bad credit information from your report? Remember that no one can legally remove legitimate bad credit information from your credit history. The only information that can be changed, amended, or corrected is incorrect or outdated information.

• Does the company freely disclose their fee-schedule and cost of service, including monthly fees, per-service fees, and other costs? Is an advance-fee required before they will take your case?

• Does the company offer an unrealistically quick solution to your credit problem? Only time and a conscientious effort to repay your debts will improve your credit report.

• Does the company clearly explain your legal rights and what you can do for yourself for free?

• Does the company prevent you from, or recommend that you not contact a credit bureau on your own?

• Does the company suggest that you try to invent a "new" credit report by applying for an Employer Identification Number to use instead of your Social Security number? This is not a legal solution - it is a federal crime to obtain an Employer Identification Number from the IRS under false pretenses.

• Does the company advise you to dispute all information in your credit report or take any action that seems illegal, such as creating a new credit identity? Be very cautious! If you follow illegal advice and commit fraud, you may be subject to prosecution.

• Does the contract include specific information about: 1) the payment for services, including their total cost; 2) a detailed description of the services to be performed; 3) how long it will take to achieve the results; 4) any guarantees they offer; and 5) the company's name and business address? The Credit Repair Organizations Act requires that this specific information is included in your contract. Read carefully to be sure you understand the terms of your agreement and ensure the contract includes clear explanations of all required information.

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Debt Prevention

The best way to deal with debt and other financial problems is to avoid them. Develop positive financial habits and build a good personal credit history by following a few simple rules.

• Pay all your bills on time - This will prove your reliability and ensures that you are a consistent and responsible consumer, not to mention saving the expense of costly late fees.

• If you can afford to, make more than your minimum payments - Paying more than the minimum balance will help you to eliminate the principle debt more quickly. Otherwise you may be paying mostly on interest.

• Keep an eye on your debt - Your creditors assign a credit limit based on your credit history, outstanding indebtedness, and income. If you are at or near your limit it is a good sign that you're headed for trouble.

• Keep an eye on your available credit - Multiple accounts and high credit limits could result in excessive debt in the future.

• Stay informed about your credit - Check your credit report regularly and dispute any inaccuracies.

• Start and maintain your personal savings - Savings are an important way to protect yourself in the event of an unexpected financial situation.

• Be honest with yourself about your financial situation - Only personal effort, prudence, and planning can repair problems and ensure a healthy financial future.

• Create a budget (and follow it!) - Make sure that your style of living and your income are in complete agreement. Regularly analyze your budget and make adjustments as necessary.

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Managing Debt

If you or someone you know is facing debt problems, there are a number of options to consider. These options can range from the simple solutions, like budgeting, to more involved solutions such as credit counseling or debt consolidation, to the last resort option of bankruptcy.

Develop a Budget

Your first step toward improving your financial situation is to realistically assess your income and your expenses. By prioritizing your expenses, identifying those that are necessary and cutting back on the rest, your can start to track and control your spending.

Contact Your Creditors

Contact your creditors right away if you are having trouble making your payments. Explain the difficulty and try to work out a modified payment plan that reduces your payments to a more manageable level.

Deal with Debt Collectors

Federal laws, like The Fair Debt Collection Practices Act, dictates how and when a debt collector may contact you. Know your personal rights regarding debt collection.

Credit Counseling

If you're unable to resolve debt problems on your own, consider contacting a credit counseling service; they can help eliminate much of the stress of dealing with financial problems on your own. These services will help you establish a debt repayment plan and may help you reduce payments with creditors.

Auto and Home Loans

If you see default approaching with your auto loan, consider selling the car yourself and paying off the debt, thus avoiding the added costs of repossession and a negative entry on your credit report. If you fall behind on your mortgage, contact your lender immediately to avoid foreclosure. Most lenders are willing to work with you if they believe you're acting in good faith and the situation is temporary.

Debt Consolidation

You may be able to lower your cost of credit by consolidating your debt through a second mortgage or a home equity line of credit. These loans may add up cost-wise, but may alternatively provide certain tax advantages not available with other kinds of credit. This option requires careful consideration, however, as these loans require your home as collateral.

Bankruptcy

Personal bankruptcy is usually considered the last resort of debt management because results are long-lasting and far-reaching. A bankruptcy stays on your credit report for 10 years, which makes it difficult to acquire credit, buy a home, get life insurance, or sometimes get a job. However, it is a legal procedure that offers a fresh start for people who can't satisfy their debts. You'll probably need to seek financial and/or legal counsel before deciding whether this option is appropriate for your situation.

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Debt Warning Signs

Many times we don't see the signs of a financial trouble until it's too late. But a debt crisis doesn't occur overnight. There are many warning signs that may indicate that your debt situation may be getting out of control. Following are a list important warning signs:

• Do you pay only monthly minimums or occasionally miss payments on charge accounts and credit cards? Are your cards nearing or over your available credit limit?

• Do you depend on overtime or multiple jobs to cover monthly bills?

• Do you often borrow from friends and relatives or depend on cash advances to cover basic expenses or pay your credit obligations?

• Do you find it impossible to save money or find yourself exhausting savings as a way of supporting your debts?

• Do you often float or bounce checks, hoping that checks you've written don't clear the bank before payday?

• Can you account for the total amount of debt that you owe? Do you avoid adding up the total of the amount of your outstanding debt or purposely hide credit card bills from family members?

• Are you considering, or have you consolidated debts by borrowing from a high-interest lender?

• Do you panic when faced with an unexpected expense, such as car repairs?

If you find yourself struggling with any or all of the items listed above, you may be living beyond your income, depending on credit, cash advances, or loans to maintain your lifestyle. If you're stretched to the limit financially, you may find that when unexpected expenses arise, you can quickly lose control of your already shaky financial situation.

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