Saturday, July 20, 2019

Why Debt Consolidation Is Bad for You

There are countless debt consolidation companies coming out right now.  They are everywhere: they call you, they show up on Google's search ads, they have ads outside your bank, they are on the radio, and they send you promotional mail.    

Debt consolidation is just that: it consolidates your loans and debts and puts them together into one big loan.  The debt consolidation company then pays off the loans you have, and you pay it back.  Sounds too good to be true?  It gets "better."  Most debt consolidation programs and companies claim that they can reduce your loans by as much as 30%, 40% even 50%.

Think about it.  Could these companies be working magic?  Are they really that influential with financial institutions and lending companies that they could negotiate lower rates for you and eliminate late fees and other penalties?

For sure, there are legitimate debt consolidation companies.  However, it is much more difficult to find them than it is to chance upon a scammer.  And the scamming is as heartless as it gets.  These scammers take your money and then disappear.  Your calls go unanswered, your e-mail's rot in inboxes with no chance of a reply, and you do not have a physical address where you can find a representative sitting by a desk.    

The overall picture is all too familiar: Most people pay the initial monthly payments to their debt consolidation companies and see their debts get paid initially as well.  They go on paying these companies, ceasing to bother if their debts still continue to get paid.  In a couple of month's time, they check and find out that the debt consolidation companies have not been paying their debts while they continue to make money out of their monthly payments.

Take note that most debt consolidation companies claim that they are not-for-profit organizations.  Most people think what this means is that these firms do not make money from consolidating people's debts.  Not true.  A not-for-profit designation is nothing more than a tax status.  What is very true, however, is that these debt consolidation companies are making money, and lots of it!    

The people who call you?  The people who answer your e-mails?  The people who go around peddling their services?  They are all sales agents who are pushed by their companies to make money, to get sales and to meet monthly quotas.  Don’t get fooled. It’s all sales talks and nothing more. Most of the time, they don’t deliver on their promises.

So if you are saddled with debt, do not take chances.  There are a lot of ways to deal with your debt without resorting to third-party assistance or debt consolidation companies.  You can very well negotiate with your creditors, or you can work to have your debts refinanced.    

If you feel that you need help, always remember that you can also do with secured debts what the debt consolidation company promises to do for you.  If a debt consolidation program claims that it can take care of your unsecured debts, credit card bills and student loans, hang up and look for an alternative.  Beware of the company that makes outrageous claims.  The thing is, if it is too good to be true, it probably is.  

Also, check out the companies online.  There are a lot of sites that look out for scams and if your potential debt consolidation partner figures in a couple of these, then look for another one.  Reputable debt consolidation companies take care of negotiations, and they can use their scale to work with your creditors to get you a better deal.  Nothing is instant, nothing is magic.  And most reputable companies charge for this service.    

As with everything on the Internet, let the buyer beware.  Before you jump into anything on the Internet, make sure that you do your research and ask around.  It would be better if you ask friends who are in the same boat as you are now about what they did and who they turned to.  At the end of the day, think of debt consolidation companies as you would any other investment.

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