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.

1. 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.
2. 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.
3. 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.
4. 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). 
5. 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.

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.

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.

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.