Debt Consolidation: Is there a smart approach?

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When overwhelmed with massive debt, many people turn to debt consolidation programs in order to avoid bankruptcy and ease their financial burdens. Problem is, nowadays it is hard to decipher between a company that is on the up-and-up -and a scam. Determining which avenue to take depends on sorting out your options and researching which avenue, if any, works for you.
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There are plenty of scams out there so as usual, it's important to do your homework. Ask questions and read the fine print before signing anything. If you arm yourself with the facts about various debt consolidation programs, you can make an informed decision and find the best solutions for eliminating your debt.  Although debt repayment and loan consolidation programs both involve consolidating bills, there are some significant differences between them.

Debt Repayment Program- A debt consolidation repayment program combines all debts into one monthly bill.  This option is best for people carrying large amounts of credit card debt.  Under most repayment programs, debt settlement companies negotiate settlement terms with creditors or lenders, usually resulting in lower interest rates and lower fees.  Consumers make monthly payments to their debt settlement companies, which, in turn, distribute payments to all creditors.  Once their debts are eliminated, usually within periods of one to three years, consumers are then free to work on rebuilding their credit.  

Consolidation Loan Program- A debt consolidation loan is a personal loan that pays off a consumer's current debt.  This kind of loan is secured through personal collateral, usually one's home or other property. Similar to debt repayment programs, a debt settlement company negotiates lower terms for the settlement with each creditor or lender.  After all debts have been paid, the consumer is then responsible for monthly repayment of the consolidation loan to the lender.   

Know How to Avoid Scams -Unfortunately, people should always be aware of fraudulent groups operating under the guise of so-called reputable companies.  There are some clear warning signs to help avoid a scam.  Unbelievable quotes for outrageously low monthly payments should make consumers wary because, most likely, there will be additional costs and hidden fees.  In addition, a debt consolidation company will need the names of creditors and lenders and the debt amounts, including the interest rates, in order to provide a realistic quote.  Avoid doing business with any company that that claims it needs more personal information, such as bank account information, a social security number or credit card account numbers, in order to provide a quote.  If someone has not enrolled with a service, sharing sensitive information can result in privacy risks, identity theft or stolen funds.

Do your Homework -With the variety of services available, it can be difficult to choose the right one in order to avoid risking one's future or compounding financial problems.  Reputable companies usually offer free information and resources, such as credit counseling or workshops to provide people with better money management skills. 

When doing research on a company's background, the Better Business Bureau is a good place to start. It can provide information about any earlier complaints launched against specific companies.  You can also check the status of any particular the company with your state's Attorney General's office -who may also have a listing of qualified providers.

Debt consolidation has given many people a fresh start.  By carefully researching potential service providers, people can find the best alternatives for ending their financial turmoil. Remember, just because a debt negotiation company describes itself as a "nonprofit" organization, there's no guarantee that the services they offer are legitimate.

Here are a few helpful and proactive tips to remember as recommended by the Federal Trade Commission;

1. Continue to pay your bills until the plan has been approved by your creditors. If you stop making payments before your creditors have accepted you into a plan, you'll face late fees, penalties, and negative entries on your credit report.

2. Contact your creditors and confirm that they have accepted the proposed plan before you send any payments to the credit counseling organization for your DMP.

3.  Make sure the organization's payment schedule allows your debts to be paid before they are due each month. Paying on time will help you avoid late fees and penalties. Call each of your creditors on the first of every month to make sure the agency has paid them on time.

4. Review monthly statements from your creditors to make sure they have received your payments.

5. If your debt management plan depends on your creditors agreeing to lower or eliminate interest and finance charges, or waive late fees, make sure these concessions are reflected on your statements

6. Beware of companies that pressure you into a plan or make any guarantees without looking into your specific needs.

7. Research the company and the services it offers. It is better if it offers a wide range of options and education on how to handle debt. (It also can't hurt to look up companies on the Better Business Bureau.)

For more information -

National Foundation for Credit Counseling  
 The NFCC promotes financial responsibility, financial education and counseling services. Call 1-800-388-2227 to speak to a counselor near you.

Be sure to visit the site and read: 
Fiscal Fitness: Choosing a Credit Counselor,

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I wanted to use a debt consolidation company but thought the company was a little shady. Two months later I heard a friend was scamed by them. I ended up refinancing and rolling in my credit card debt. It is very hard to pick out the good business out of a stack of bad ones that sprout up in today's economy. I think we should a list of licensed companies, by state, that FTC or state protection agency approve to do business. Maybe there is and I'm not aware. It seems like a business that could thrive in today's economy, if we only knew who we could trust. Too bad.

I was always under the assumption that if a company was a registered non profit they were govt approved. That's not always the case.

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