4 Dangers To Be Aware of Before Choosing a Debt Consolidation Loan
- Author Randy Dehetre
- Published August 8, 2011
- Word count 490
When you are struggling to pay your debts or dreading the mail each morning because it brings more demands for money then the slick TV ads for debt consolidation might seem like an attractive option. They usually have some well known celebrity talking about how easy it is to magically erase your debt worries or talk about how they want to help you forget the stress of dealing with new bills each day. If you are tempted to call one of these companies, remember that they are businesses looking to make a profit out of you so be aware of the following dangers before choosing a debt consolidation loan
Low Advertised Rates
The debt consolidation companies will advertise a loan rate that is usually far lower than what you are paying on your credit cards. But beware! This is a hook to get you to call them or visit their website. The rate is usually for people with a spotless credit score and who are looking to borrow a large amount of money which is not indicative of the type of person who has no other option than to consolidate their debt. The rate you get may only be a few percentage points lower than what you are paying on your credit and store cards and since the loan is for a longer period of time it will end up costing you far more in the long term.
Hidden Fees
There is a minefield of hidden fees when it comes to debt restructuring. These companies are looking to extract as much profit out of you as possible and will have various fees every step of the way. For example there may be processing fees for your loan, late payment fees and even early repayment fees if you want to repay more when you can afford it.
Masquerading Companies
One of the ways debt consolidation companies get their business is by masquerading as organizations looking to help people out of debt rather than a financial company. Often they will have names with words like ‘advice’ or ‘counseling’ or ‘bureau’ in the company name and they invite you to arrange a consultation to discuss your debt relief options. What happens is that you are subjected to a strong and persuasive sales pitch recommending that you go for a debt consolidation loan, often at rates higher than the market average.
Additional Services
Another way debt consolidation companies look to make money out of you is by offering additional services such as contacting your existing list of creditors to negotiate better rates of interest. They might claim that they have more influence over them than if you were to contact them yourself but there isn’t any guarantee of it. Instead it’s far better to contact the individual companies you owe money to and explain the situation and ask for a better rate of interest instead of paying more fees to another company.
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