Credit Card Debt Consolidation Companies
Credit Card Debt Consolidation in Phoenix, AZ: the Good, the Bad & the Ugly
Many debt consolidation companies, conscious of the fact that many Americans are swimming in credit card debt, have begun aggressively advertising how credit card debt consolidation can make you debt-free. These companies claim that debt consolidation will lower your interest rates, while giving you one smaller monthly payment. What they don’t tell you is what credit card debt consolidation actually is. Put simply, debt consolidation involves nothing more than taking out another, larger loan. Below we dispel the three most common myths surrounding debt consolidation:
Myth #1: Debt consolidation always saves you money.
Truth: Debt consolidation that results in a lower interest rate and a lower monthly payment does so usually by extending the term of the loan. This means that not only are you staying in debt longer, you are also paying the lender more money over time.
Myth #2: Debt consolidation companies don’t make any money off of you.
Truth: There wouldn’t be debt consolidation companies if they didn’t make money somehow. Of course, there are legitimate non-profit debt consolidation companies out there, but it’s becoming increasingly harder to distinguish between the legitimate and the not-so-legitimate companies out there. In fact, many companies claim to be non-profit, when in reality, they are making millions of dollars in profit by exploiting people who don’t know any better. Moreover, even if a company is in fact non-profit (they should be able to provide proof of their 501(c)(3) or nonprofit status), this does not always mean that they have your best interests in mind.
Some things to look out for: application fees, excessive monthly “service” fees and lack of a customer service department. If you’re charged an initial application fee before finding out what loans you qualify for, you’re more than likely dealing with a scam agency. Legitimate consolidation agencies will not charge you for the application process, just like a bank wouldn’t charge you for applying for a loan. Another sign you are dealing with a scam consolidation agent is if they charge excessive service fees. Consider what the consolidation company is actually doing for you – is it really worth the fees they are charging to have a consolidation agent transfer your money to your creditor?
If you do choose to proceed with debt consolidation, do your research before signing any contract with a consolidation agency. A good place to start is the Better Business Bureau’s website, http://www.bbb.org, which maintains records of customer complaints and compliments and rates companies satisfactory or unsatisfactory according to this information.
Myth #3: Debt consolidation is the best solution to get you on a path to recovery.
Truth: Unlike credit counseling, debt-management programs, debt settlement and even bankruptcy, debt consolidation attempts to solve your debt problem with more borrowing. The answer to your debt needn’t be more debt. Many people who enroll in debt consolidation programs find themselves in worse financial positions than they were in before.
Unlike debt consolidation, for instance, credit counseling and debt-management programs work to help consumers develop a budget, as well as teach them disciplinary skills and money-management strategies that will help them in the future. But they often don’t provide relief from the crushing debt and you still end up paying back most, if not all of the excessive debt. On the other hand, if you want to get out of debt faster, and for less money, debt settlement is typically a much better choice than debt consolidation, credit counseling and debt-management programs. Debt settlement is unique because not only do you eliminate your debt, you do so by paying only a fraction of what your creditor is claiming you owe.
If you are overwhelmed with debt and are having trouble deciding what solution is best for you, you’re not alone. The attorneys at McCarthy Law are happy to review your finances and provide you with professional legal advice on what option is best for you. Contact our Phoenix, Arizona area office today to schedule your free, no-pressure consultation.