Wednesday, May 11, 2011

Day 212 - Debt Consolidation Service Dangers (Guest Post)

May 11, 2011

Day 212 - Debt Consolidation Service Dangers
(guest post via Louise Baker)
Image: FreeDigitalPhotos.net

Louise Baker is a freelance blogger who usually writes about accredited online colleges for Zen College Life. Her most recent article ranked online criminal justice degrees.

Debt is something that can pile up very quickly. As the debt amount grows, this can easily escalate into something that is unmanagable, and people usually begin to look for a way to get a handle on their debt. There are many different options for getting out of debt, and one of those is using a debt consolidation service. While these services do have their positives, there are many negatives that need to be addressed.

Not a Quick Fix
Many people who seek out the services of a debt consolidation service go there thinking they find the quick answer right away. This is not how a service works. They will have a few different options for you to consider but none of them will be quick. They all will take time, energy, dedication and hard work.

Maintenance Fees
These services are in business and they seek to make a profit. One of the ways they earn money is through maintenance fees. These fees are charged a few different ways. Some charge a monthly fee just for the use of their services. Others may charge a fee upfront before and services can be used. In addition to monthly fees for any services that are provided, such as loans, those will have fees assigned to them as well. Before seeking the help of any debt consolidation service, be sure to know about their fee schedule so there is no shock later on.

Debt Consolidation Loans
These types of loans are the main service that debt consolidation centers provide. They take all of your outstanding debt, combine them all into one and a single loan is created. The customer will pay the debt service and then the service will turn around and pay the creditors on your behalf. There are a few worries with these loans. Most people who seek the assistance for debt services do not have the best credit. Because of this, the consolidation loans will have a higher interest rate. This rate may or may not be any better than a traditional loan and could cost much move over the life of the loan. Another downfall of a debt consolidation loan is that you are relying on the service to pay your creditors for you. They do not always pay on time and this can damage your credit further.

If you are in need of assistance with your debt, seek all options in full before deciding the best one for your situation. While debt consolidation services may work from some, they are not the best for all. Getting rid of debt does take time and lots of dedication but it is a goal that can be achieved.

3 comments:

travispizel said... Best Blogger Tips

I'm not sure if "Debt Consolidation Loan" is the right term here...unless you're talking about a completely different product than I'm familiar with (which is entirely possible) But this sounds a lot like a Debt Management Program - which is what I am enrolled in.

In the beginning they contacted my creditors and negotiated a monthly payment and a lower interest rate (which allows for more of the payment to go towards the balance instead of interest).

I pay them the combined payment, and the disperse the payment then to the creditors.

The creditors expect a payment every 30 days. As long as you make the payment to the Debt Management provider on time, the creditors should be happy.

The credit lines are closed by your creditors in exchange for the benefits of being in a DMP.

The estimated time of my program is 5 years (I've almost got 2 behind me) - at the end of that 5 years all my credit card debt will be gone....I have no idea how long it would have taken if I would have just paid the minimums with the "standard" interest rate.

The $60K Project said... Best Blogger Tips

Thanks for your input, Travis. I am hoping this guest post will open up a dialogue about debt consolidation programs. I have heard many horror stories (I listen to Dave Ramsey a lot - he's not a fan) so it is great to hear an alternative perspective. Thanks so much for the comment!

travispizel said... Best Blogger Tips

I'm not sure if "Debt Consolidation Loan" is the right term here...unless you're talking about a completely different product than I'm familiar with (which is entirely possible) But this sounds a lot like a Debt Management Program - which is what I am enrolled in.

In the beginning they contacted my creditors and negotiated a monthly payment and a lower interest rate (which allows for more of the payment to go towards the balance instead of interest).

I pay them the combined payment, and the disperse the payment then to the creditors.

The creditors expect a payment every 30 days. As long as you make the payment to the Debt Management provider on time, the creditors should be happy.

The credit lines are closed by your creditors in exchange for the benefits of being in a DMP.

The estimated time of my program is 5 years (I've almost got 2 behind me) - at the end of that 5 years all my credit card debt will be gone....I have no idea how long it would have taken if I would have just paid the minimums with the "standard" interest rate.

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