The 411 on Consolidating your Debt
The 411 on Consolidating your Debt
The 411 on Consolidating your Debt
There's a lot of talk these days about debt. Seems like every day, the average American household's unsecured debt balance grows by another thousand and the ordinary billfold attracts another credit card. To be sure, our combined debt load has reached epic proportions, and this hardly helps our greater national economic crisis. Something must be done, but borrowers should wait a moment to reflect upon their options before going out to attempt a consolidation package. The sheer number of television commercials and direct mail brochures make it seem like debt consolidation is our country's leading industry, and, while we understand the temptations of consolidation when listening to the various promises made by each company, it's important to remember that advertisements rarely tell the whole truth about any thing. Most consumers at least vaguely understand the underlying precepts behind debt consolidation one firm or another bundles up all of your debts together in order to, ideally, lower interest rates, reduce payments, and (though this seems thoroughly counter intuitive) pay off your debts quicker but there are a huge array of details which may put these claims into question.
More than anything else, the borrowers must recognize that there are many different types of consolidation loans. From home equity mortgage lenders to Consumer Credit Counseling companies to debt settlement firms to Chapter 13 debt restructuring bankruptcies honestly, whenever you bring one credit card balance onto another one for temporarily lowered rates, that's technically a consolidation loan there's a host of options now available to debtors itching for some salvation to bills increasing by the second. While every consumer must look to take advantage of programs that may honestly better their financial situation, they also have to worry about all of the niggling details which could genuinely harm their eventual economic health. Having one loan instead of several may seem to make budgeting sense, it will certainly be more convenient for most families, but, alas, the realities of consolidation do not always follow the advertising slogans. When you look at this another way, there's more to reasoned debt management than saving a few dollars on stamps and envelopes. Depending upon the program chosen, you may irrevocably compromise your home's equity or, through the course of extended terms and lowered payments, end up responsible for many times the original balances years down the road. Add to this the recurrent problem of damaged (sometimes, for up to a decade) FICO scores and credit ratings, and it is clear that borrowers should be very tentative about approaching any debt consolidation program. With this essay, we suggest a few tactics to employ before considering consolidation and explain the varying solutions currently being offered.
Before anything else, borrowers must make sure that they receive their own copies of those credit reports we'd just spoken about directly from the three main credit bureaus: Equifax, TransUnion, and TRW. Avoid the companies however catchy their commercial jingles or threatening their messages which ask for payments, credit card information, or, upon clicking on their websites, immediately sign you up for pointless but high priced programs meant to protect you from identity theft (far less successfully than your banks or credit cards, we might add). Even if it takes a little time (and, we'll explain, a small charge), it's best to go straight to the source. By congressional law, each credit bureau must mail you a copy of your credit report within ten days of written request. Unfortunately, they are under no such obligation to send alongside notes about your FICO scores. The credit bureaus themselves must pay a certain price to the Fair Isaacs Corporation for the use of their scoring system, and, of course, they would love nothing to more than to pass the expense on to you the consumer. You must get the scores before even thinking about the potential for debt consolidation and what you could possibly expect, and you must get the scores from all three bureaus because there can be a great deal of discrepancy between them.
Now, once you have collected all of those credit reports, you should take a weekend just studying the results don't bother to try and figure out exactly how they have been compiled; the ever changing logarithms are a well guarded secret. First, make sure the information that they have recorded is accurate. You would be surprised how often that debts or utilities paid ages ago (this is yet another reason to keep complete records for up to seven years) still appear on one credit bureau or another's data. For that matter, sometimes they may have even accidentally recorded a debt from someone with the same name. Clearly, it is up to the borrower to demand any false information should be changed immediately, but, even beyond the obvious steps, it's not that bad an idea to dispute even the financial obligations that you know to be true. Another element of the law makes credit bureaus, once information has been deemed suspect by the borrower, force the lender to prove the veracity of their claim. While this rarely works, it is free for the borrower, and the lenders have been known to drag their heels until well after debts fall off the credit reports. Anything that you can do to improve the credit scores sometimes borrowers are shocked to find twenty dollar library fines from years ago are still dragging down their FICO numbers should have obvious repercussions for your eventual debt consolidation plans: both what you can expect to qualify for and what your eventual interest rates will be afterwards.
Once you have analyzed all three credit reports (and cleaned up the wrongly compiled information), the next step should be to add up all of the debts that are currently owed and to also take a look at the interest rates and the payments. There are debt calculators available for free on different sites on the internet which can then assist your household in figuring out how long it would take to pay off your various debts over traditional means. Depending upon your specific debt load, learning that it would be decades before all credit card debts would be eliminated can be a bitter pill to swallow, but it's better you learn that now before waiting for the consolidation companies to present their own spin. From there, the only choice is seeing whether or not it is possible to get your debts under control by prioritizing the most troubling ones without relying upon the help of debt professionals. Try getting together with your family and agree upon a strict process of budgeting. Cut back on all expenses that are not absolutely necessary cable, magazines, lawn maintenance. Try selling all unneeded household goods or trade in a poor gas mileage vehicle for one with lower cost of upkeep. See what additional forms of income the household could adopt. Call the credit card company representatives and (presuming you have the necessary FICO scores) ask about lower interest rates in exchange for a new payment plan. Do whatever it takes to make entirely sure that your debts could not simply be paid off by hard work and thrift.
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