Do You Need Help With Credit Cards and Unsecured Debt?
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Most visitors to this site are looking for information, answers, and help in dealing with their debt. Many of you are looking to consolidate, pay off, or get caught up on your unsecured debts. While we have provided a wealth of information in the articles, many of you would like to speak to a qualified, trustworthy financial expert to answer your questions and perhaps offer advice about your specific situation. If this applies to you, you should contact an accredited financial counselor at the nonprofit Vision Credit Education, Inc. Find out how you can get help and out of debt today.
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Red Flags for Unsecured Credit Card Debt Consolidation Companies
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If you are looking for a company to help you consolidate your unsecured debts, such as credit card debt, then you should preceed with tremendous caution. While there are honest companies who can help you get out of credit card debt, there are also many unsecured credit card debt consolidation companies who are looking to profit off of you without considering your best interest.
How can you decide which companies will legitimately help you and which will potentially leave you worse off and in more debt? Here are a few tips and warning signs to look out for in your quest to consolidate and eliminate your debt.
- The Better Business Bureau. Always, always check with the BBB, and any other organizations that can help you, the consumer, find an agency you can trust. If a company is not affiliated with the BBB, or if it is not in good standing, then be wary. Do your homework and research a company, maybe even google it and see what information you find. Still, don’t automatically discount a company because you find negative information on the web, anyone and everyone can anonymously post disparaging information on the internet, whether it is accurate or not. Try to use sound judgment.
- High Fees or “Vague” Fees. If a company will not clearly and explicitly state their fee structure, you should hear an alarm going off in your head. Ask directly what fees will be charged, and expect a straightforward, honest answer. Also, get an idea of what “reasonable” fees should be, and avoid companies charging excessive fees for consolidation services. If you are already struggling with excessive credit card debt, the last thing you need is excessive fees.
- High Pressure Sales Tactics. You don’t need to be sold or pressured into an unsecured credit card debt consolidation option. If a company or salesperson or “counselor” seems overly aggressive and is giving you a high pressure sales pitch, hang up. You do not need to be “sold” on getting out of debt, so it is likely this salesperson does not have your best interest in mind. Rather, he or she is more likely paid a commission, and has incentive to get your business whether it helps you out or not.
- The Time Test. If you are unsure of what debt option you want to pursue, this test is crucial when getting advice. If a counselor or salesperson is not taking his or her time to learn your individual situation, and/or if they quickly (less than 15 min., or without learning thoroughly about your financial situation) reccomend a particular option, service, or product, you will want to take their advice with a giant grain of salt. Any professional needs to take the time and learn about your unique situation before being able to decide which options will and won’t benefit you. Plus, if they are trying to quickly sell you on an option and get you off the phone, they may be commission based employees (refer to item 3).
- Unrealistic, Too Good to be True Advertising. Most companies need to advertise to attract customers, do simply advertising is not always a bad thing. But just because you see a company advertising frequently, doesn’t mean that company is the best or even good. Plus, many advertisements make outlandish and unrealistic statements about the benefits they offer to you. Ask companies explicitly about their advertised statements and how they apply to you, and be sure to get a straightforward answer. And never get that if something sounds too good to be true, there is a very good chance that it is.
Following this tips can help you avoid making costly mistakes when you begin the process of consolidating and getting out of debt. Be sure to do your homework and look out for red flags when you are dealing with an unsecured credit card debt consolidation agency, and you will be on your to being debt free much faster.
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Unsecured Credit Card Debt Consolidation Mistakes: Home Equity Loans
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As we have discussed in previous articles, consumers have many different choices and options for unsecured credit card debt consolidation. While the options for consolidating your debt are numerous, it is important to choose the right option for your situation and avoid making costly errors. Otherwise, you could end up even deeper in debt.
Today we will look closely at what has become one of the most widely used methods of consolidating and eliminating credit card debt and unsecured debt: Home equity loans and refinancing. This can be a smart decision for some, allowing them to save lots of money on interest and pay the debt off at a much lower interest rate. However, there are a couple of major pitfalls that you will need to avoid if you consolidate your unsecured debt and credit cards in this way.
Turning Unsecured Debt into Secured Debt
Credit card debt, medical bills, personal loans, and many other debts that people commonly pay off with home equity loans are unsecured debts. This means that there is no collateral on these debts. If you fail to meet your payment obligations on these types of accounts, your creditors cannot simply foreclose on your home or repossess your car like they could on secured accounts.
For example, your mortgage loan is secured by your home, and your car usually serves as the collateral that secures your auto loan. So when you default on your mortgage, the bank can foreclose on your home, and when you default on your car loan, the bank can repossess your car. In fact, it is relatively easy for the bank to pursue those options when you do not make your payments.
When you default on your credit cards and other unsecured debts, there is no simple, easy way for your creditors to collect because there is no collateral that the creditors have a right to take. To pursue any collection method other than calling you and asking you to pay, the creditor would have to take you to court and get a judgment against you. Even then, it is very unlikely that you would be losing your home or car over an unpaid credit card.
When you consolidate your credit cards (and any other unsecured debt) using the equity in your home, you are essentially converting these unsecured debts into a debt that is now secured by your home. Your house now serves as collateral on this debt.
Now, if something happens and you are unable to make your payments, you are putting your home at risk, and the bank now has a claim to your house.
Most people feel that they will be able to make their payments, so this is not an issue for them. However, very few people consider the very real possibility of an unforeseen event causing them to default on their debt payments. What if any of the following were to happen to you? Would you still be able to meet your obligations? What if:
- You or your spouse are laid off or fired? Most people think it cannot happen to them, but millions of people lose their jobs every year.
- You have an accident and are temporarily or permanently disabled? No one likes to think about such things, but it does happen. If you or your spouse become disabled and are unable to work, even temporarily, could you still make all of your payments?
- Someone becomes severely ill? Again, this is something we do not like to consider. Still, if you, or your spouse becomes severely ill, could you still afford your current lifestyle? What if you are unable to work? What about the cost of medical care that may be necessary?
- Other unexpected expenses occur? With suddenly skyrocketing gas prices and inflation in food on living expenses, many people are experiencing financial troubles right now. What if other unexpected expenses occur? Many people consolidate their debt because money is tight, but if you are already close to the edge, it will not take much to push you over. One unexpected expense or a rise in living expenses could be too much for you to handle.
These are just some of the things you will want to consider before using your home equity to pay off your unsecured debts. Still, using your home equity as a means of unsecured credit card debt consolidation can be the right choice for some, provided you carefully evaluate your situation.
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Credit Card Consolidation Mistake 2
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As part 2 in our article series outlining common pitfalls to avoid in unsecured credit card debt consolidation, today we will discuss common credit card debt consolidation mistake number 2: ignoring fees, charges, and other hidden expenses.
Read the Fine Print
No matter what debt consolidation option you choose, it is important to know exactly what fees and charges will be incurred. If you ever feel that a company is being too vague, or will not explicitly state what fees and charges will be applied, then there is a good chance you may not want to do business with that organization.
When deciding to consolidate their credit cards and unsecured debt, many people tend to focus only on interest rates. All too many people mistakenly believe that simply getting a lower APR (annual percentage rate) means getting a better deal. Unfortunately, things are not so simple.
Whether you are consolidating your credit cards with a balance transfer, an unsecured loan, or a home equity loan, you may be charged significant transaction fees, origination fees, or other types of charges. It is important to factor these fees into your decision, as any savings you gain with a lower interest rate may be eroded away by these fees.
Will the Interest Rate Remain Low?
Even when simply comparing interest rates, it is important to look deeper than the simple numbers. Find out if your new, lower interest rate will be permanent or just a teaser rate that will expire after a fixed time period. It is also important to find out if your new interest rate will be fixed or variable; if it is variable, you may still end up paying more interest after consolidating.
Finally, you will want to know what happens if you miss a payment or default. This is particularly a problem when you transfer your balances to consolidate your credit card debt, because nearly all credit card companies can raise your interest rates to extremely hight “default rates” if you miss or are late on a single payment. In fact, many creditors can raise your rates even if you miss a payment on a seperate, unrelated account (universal default clause)!
By considering all the terms and conditions and weighing the costs of any fees and charges, you will be able to make a much more informed decision, which should help you save more money with your unsecured credit card debt consolidation.
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Common Consolidation Mistakes: Mistake 1
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With so many options available for unsecured credit card debt consolidation, and with so many companies competing for a slice of the lucrative debt consolidation pie, it comes as no surprise that many people make one of several all too common mistakes when consolidating their debt.
Whether you choose the wrong credit card consolidation option, or you simply choose the wrong company for help, these mistakes can prove to be very costly. This series of articles will examine some of the most common credit card consolidation mistakes to avoid when you get started on your way to getting out of debt.
In this article, we will look at common consolidation mistake number 1: Blatant Scams and Disreputable Companies. Other mistakes covered in this series include:
- Not Accounting for Fees and Other Expenses
- When Lower Interest Doesn’t Pay
- Risking Your Home for Unsecured Debt
- Saving Short Term, Losing Long Term
Avoid Rip Offs and Shady Companies
When people are struggling with debt, they tend to get desperate. Unfortunately, many shady companies are more than willing to prey on those in desperate need of help by making false promises. Instead, the consumers who fall for these deceptive practices usually winding up in even more debt.
The first and most important rule when you are searching for help in getting out of debt is this: If something sounds too good to be true, it probably is. Many of us want to believe that we do not have to legally repay our debts, or that a company can totally wipe out our debt for a tiny percentage of what we owe, but if these promises were true all of the banks and credit card companies would have long been out of business. It can be tempting, especially when you are struggling with mounting credit card bills, but resist the temptation for the easy way out: it is usually just a scam, and leads to an even harder road out of debt.
Not a Scam, but Still a Rip off!
Some people who choose a legitimate option for consolidation still find themselves in worsening situations as well. This happens quite often when a consumer seeks help from a disreputable or shady company. The company may have predatory terms, such as exorbitant and/or hidden fees, or the company may simply be too eager to land new clients, even when the service offered does not truly fit the client’s best interests.
How to Consolidate Your Credit Cards and Unsecured Debt and Avoid being Ripped Off
Whenever you are considering working with any company that will be impacting your finances, it is important to do your homework! Research the company’s background, and check with the Better Business Bureau to see if the company is a member. Still, being a member is not enough: check to see what kind of record the company has with the BBB! If a company is rather large, it may still have a few complaints, but be wary of any company that has too much negative feedback!
It is also a good idea to avoid any company that tries to pressure you into using their products or services. This does not automatically mean the company will rip you off, but a company using high pressure sales tactics probably does not have your best interest in mind. Nearly any for profit company will fall into this category. So what should you do?
The best approach is to find a knowledgeable, yet unbiased, source of information. Some non profit credit counselors may fall into this category, but certainly not all of them will. Try to find a knowledgeable and helpful credit counselor (or any other trusted and informed source) who does not seem to be “pushing” you in any one direction, but is instead helping you to explore all of your options and helping you come to your own decision.
After choosing your best consolidation option in this manner, you can begin researching which company will be the best fit for you. Be sure that any company you deal with explicitly spells out all fees and charges, and also tells you exactly how the product or service that you choose will work.
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6 Unsecured Debt Consolidation Options Explained
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When it comes to unsecured credit card debt consolidation, there seems to be a constant barrage of confusing and conflicting information and advertising. Wikipedia’s entry for the term “debt consolidation” proves to be vague, a bit confusing, and completely unhelpful for consumers looking for help in getting out of debt.
To further confuse matters, many companies advertising under the guise of “debt consolidation” or even “credit card consolidation” are actually offering totally different services or products! A quick search on google will probably leave the average consumer’s head spinning.
If you are looking for information or help with unsecured debt, how are you supposed to make sense of all this? Well that’s why we are here, so today we will explain some of the different options for consolidating your credit cards and unsecured debt.
1. Home Equity Loans. Home equity loans use the equity that you have in your home as collateral, generally allowing you to obtain a relatively low interest rate loan. Many people use these loans to consolidate credit cards and other unsecured debts. You must own a home, have equity, and have a relatively good credit score and credit history for this debt consolidation option to be available to you.
2. Refinancing. This option is very similar to the home equity loan option just discussed. With refinancing, you actually take out a new mortgage on your home which pays off the remaining balance of your old mortgage. Many people refinance to take advantage of better terms such as lower interest rates.
If you have equity in your home when you refinance, you may have the option of “cashing out” and taking cash, which will be rolled into your new mortgage balance. Many people use this cash to pay off high interest credit card debt.
As with the home equity loan, you must have solid credit and equity in a home to pursue this option for getting out of debt. Refinancing typically gets you a lower interest rate than a home equity loan; however, fees can be substantial and refinancing is generally harder to do.
3. Unsecured or Debt Consolidation Loans. For people who cannot, or do not wish to, obtain a home equity loan (or refinance), an unsecured debt consolidation loan may be an option. These loans, also known as personal or signature loans, generally have much higher interest rates than home equity loans because they are not secured by any collateral. Still, depending on your situation, they may have better rates than your credit cards. In order to take advantage of this debt solution, you generally need a pretty good credit score.
4. Debt Settlement. Debt settlement is probably the most controversial option for dealing with unsecured credit card debt. This is mostly due to the fact that, although many debt settlement companies advertise as a “debt consolidation” service, many people feel that it is not, in fact, a form of debt consolidation.
Without making any judgments, we will just say that using the services of a debt settlement company usually involves making monthly payments to the settlement company. These funds are usually held by the settlement company until you have saved enough to settle your debts and to pay the company’s fee. Then, the debt settlement company will attempt to reach an agreement with your creditors to pay a percentage of the debt that you now owe, and agree that you have no further obligation to the creditor for the settled account.
Debt settlement is probably not generally an attractive option for people with good or fair credit ratings, or for consumers whose debt is still held by the original creditors. For the consumer whose accounts are all in the hands of collection agencies, debt settlement MAY be helpful, but we would advise careful consideration of all factors (although we generally would never recommend a debt settlement, for reasons we will cover in depth in a future article).
5. Debt Management Plans or Credit Counseling. Another somewhat controversial credit card consolidation option is a debt management plan, also commonly referred to as “consumer credit counseling” or just “credit counseling.” Despite much misleading and inaccurate information, credit counseling can be a helpful option for debt consolidation for many people struggling with credit card debt.
For those who are behind on their credit card bills, over their credit limits, or are struggling with high interest rates or steep monthly payments, credit counseling could be their saving grace. In a debt management plan, a credit counselor works with your creditors to get you lower interest rates, get rid of late fees and over the limit fees, and helps you get your account back to current status. In many cases, a debt management plan can lower your monthly payments as well as help you pay off your debt much, much faster.
Still, credit counseling is not for everyone: those with already super low interest rates or those who can easily pay off their credit cards on their own very quickly should not seek the aid of a debt management plan. For those who do choose credit counseling, seeking a reputable agency is key. This topic will also be covered in much more depth in future articles.
6. Banktruptcy. The dreaded final option. Bankruptcy also gets a bad name by those who abuse it as a way to get out of paying their debt, by attorneys who try to convince nearly everyone to file, and by those who feel it is irresponsible and the ultimate shame. The truth is, bankruptcy is a good last resort for those who truly need it and have exhausted all other options.
Certainly, you should try all reasonable solutions before deciding to file bankruptcy. However, in certain cases, people truly have no other option or means to pay off their debt. While filing for bankruptcy does have negative consequences, it is not the end of the world. In fact, bankruptcy is designed to be somewhat of a clean slate for people who have no other recourse.
Unfortunately, many people believe that filing for bankruptcy means you will lose your home or car, or that you will never be able to obtain credit again. Fortunately, these beliefs are mostly false.
Hopefully you now have a better idea of how these 6 most common debt consolidation options work, as well as which options are most likely to be helpful to you. These topics will all be covered in much more depth in future articles, as each is much too complex to be discussed fully in this article. Remember, if you are beginning to struggle with any kind of debt, whether it is your mortgage, car loan, credit cards, medical bills, or anything else, it is important to get help quickly before you run out of options. Still, it is important to do your research, be cautious, and find reputable and trustworthy sources for information, particularly when it comes to the often controversial topics of unsecured credit card debt consolidation.
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