When you meet or discuss with a debt consolidation company they may not explain the “fine print” associated with their programs. At first glance debt consolidation programs seem appealing but before you sign the dotted line, make sure you know the fine details of the program you are signing up for. Here is a summary of details some debt consolidation companies try to gloss over to make their programs more appealing:
Fine Print of Debt Consolidation Programs
In order to receive debt relief from consolidation programs you need to know if the program will work for you and your future. Debt consolidation companies are very good at painting a pretty, simple picture of their programs by leaving out some details that are only described in the fine print of the contract.
In order to avoid entering into a program that will not improve your situation you could talk to a bankruptcy attorney and discuss debt consolidation options and how they can affect your specific situation. Also, if you are communicating with a debt consolidation company, be sure to ask the following questions:
- What type of debts do you cover?
- Why is this program right for my financial situation?
- How will it solve my financial problems?
Effect on Credit Score
It is a common misconception that bankruptcy negatively affects your credit score. In fact, people often turn to debt consolidation programs because they don’t want to harm their credit score by filing for bankruptcy. According to Business Insider, between 2 and 2.5 million Americans consult a credit counselor every year to elude bankruptcy. More often than not, your poor financial history is what has negatively impacted your credit score, not the fact that you filed bankruptcy.
However, debt consolidation programs can harm your credit score too. Missed, late and lower payments, plus closed accounts negatively affect your credit score; debt consolidation program’s success revolves around these three conditions. Download The Truth About Debt Consolidation for more information about how debt consolidation companies function to succeed.
Costs
Discussions about fees are brief or don’t happen at all unless the debtor specifically asks about it. It is very easy for debt consolidation companies to take a percentage of your monthly payments without you noticing.
Also, timelines for payment often get extended in these programs to ensure you are making fair and adequate payments to all of your creditors. This results in you paying more because your repayment period is longer and the debt consolidation companies make more because they are receiving a percentage of your payments.
In order to fully understand what you will be paying for when entering into a debt consolidation program you should ask the following questions:
- How much will I have to pay in fees?
- What is the tenure of the program? How long will it take for me to become debt free?
- If I make a late payment, what are the late charges or penalties?
- What will my new monthly payment be and how is that determined?
Creditor Involvement
Creditor compliance with a debt consolidation program is voluntary. Debt consolidation companies do not have the power to prevent legal action taken by your creditors. These points aren’t always made clear in discussions with debt consolidation companies.
Debt consolidation programs are appealing because they promise lower interest rates and lower monthly payments, but what they don’t make obvious is that your creditors DO NOT have to participate. If the negotiations aren’t appealing for your creditors, your creditors can turn down any requests for lower payments, reduced interest and fees or other plan requests.
During initial conversations your debt consolidation company will also highlight the fact that creditors will need to direct all communication through the debt consolidation company, which will stop the harassment you are currently experiencing. On the surface this seems great because creditor harassment is frustrating and stressful, but debt consolidation companies are conveniently leaving out the fact that creditors can still engage in collection activities and legal action, such as lawsuits, wage garnishments and repossessions, to collect on your debt. Entering into a debt consolidation program does not mean creditors will stop trying to collect the money you legally owe them.
You should be prepared to ask questions about the fine print and how the specific debt consolidation program will solve your current financial difficulties. If the debt consolidation company is unable to provide sufficient answers to your questions or present viable solutions for your financial situation you should consider an alternative for debt relief.
Download our free eBook, The Truth About Debt Consolidation, for detailed information about the debt consolidation options available for debt relief and ideally, elimination.
