Debt Consolidations Loans, Consumer Credit Counseling, or Both?

[May 1, 2009.]

 

The debt conundrum has such a grip on our economy that helping people escape it has become an industry in and of itself. Debt consolidation loans are tantalizing, but the resulting deal could leave you in a worse position than you were. Consumer credit counseling sound harmless enough, but some “counselors” are out to make a profit. Here’s a closer look at both options and how you should approach your decision.

Debt Consolidation Loans Up Close
Debt consolidation describes the process of combining all of your unsecured loans into one balance. The idea is to exchange several monthly payments, with several corresponding interest rates, into a single payment. The notion is to simplify your finances and encourage you to pay off the debt sooner by relieving you of the feeling of being spread too thin. And it’s a good concept in theory--but some debt consolidation loans aren’t what they seem.

Some debt consolidation offers come with strings attached, such as a balloon payment or outrageous annual percentage rates. Others require you to pay a monthly service fee or similar “extra” that you could have avoided by not signing on. Also, some debt consolidation organizations are rather unscrupulous when it comes to meeting their quotas, reveals SmartCreditInfo.com. This may include but not be limited to hiding important terms and conditions.

Consumer Credit Counseling Up Close
Consumer credit counseling is exactly as the name implies. If you’re unable to maintain a strict budget or find yourself drowning in debt, counselors will meet with you to determine a plan of action. This may include setting up an escrow account that you fund for payments on unsecured debt. Credit counselors may also contact your lenders in order to negotiate favorable repayment schedules that you can live with.

In general, consumer credit counseling is an ideal first step. Just be wary of those that refuse to help until they see your financial position, or those that require any money up front. These could be signs of a for-profit entity.

The Bottom Line
Approach any debt reduction strategy carefully and with open eyes. Those who really want to see you in a better financial position will present a variety of options and listen to your needs.

 

About Author:

Kelly Richardson is a freelance writer, marcomm consultant and digital entrepreneur. He’s written content for Fortune 500s Google, Yahoo!, Microsoft and Wells Fargo. Find out more about him at kellyrichardsoncopywriting.com.