Debt Consolidation: Debt consolidation is a very beneficial process to solve your numerous debts. Here your multiple debts are consolidated into a single amount. On approaching a debt consolidation firm the consultant first analyses your present debt amount. The debt consultant then negotiates with the creditor on your behalf and reduces your debt amount to around 30%-60%. In most cases interest rates are reduced. Late fees and hidden taxes are also waived at times. The revised consolidated debt amount is divided into easy monthly installments that make your repayment plans much easier.

Debt Consolidation loan: The debt consolidation loan helps you in combining all your outstanding debts in one loan account. For example, you may have an existing loan with a balance of $2,500 (15% interest rate), a credit card balance of $1,000 (12% interest rate) and a store card balance of $500 (10% interest). These could all be consolidated into one loan of $4,000 (8% interest). The purpose is to actually reduce monthly repayments. Either the interest rates are lowered on the new loan, or the repayment period can be extended.

Debt Consolidation can:

• Help avoid filing bankruptcy

• Eliminate creditor harassment

• Lower debt payments up to 50%

• Provide one monthly payment

Credit counseling, bankruptcy, consolidation loans all are possible tools to help you solve your debt problem. Keep in mind that while they all can lower your payments, and provide relief, they also can have consequences. For many individuals, credit counseling may be a very responsible course of action. Credit counseling can set you on a new path to better finances, but it is not going to eliminate your debt problem over night.

Credit counseling may not be the best option for every situation. Educate yourself and consult with professionals. Talk to a credit counselor to find out what it can do for you. It is beyond the content or intent of this Web site to advise any individual that credit counseling is right for them. Be responsible, learn about your options, and take action!

Consolidate your loans

Most people have more than one debt. You may have high interest credit cards, loans and mortgages. To pay off one debt you may need to borrow from someone else, creating yet another debt. The solution to this problem is debt consolidation.

If you own a home, you can get a debt consolidation home equity loan. With a debt consolidation loan you will have to consolidate each of your high interest credit cards, as well as your consumer loans, into one inexpensive and affordable monthly payment with low interest.

Consolidate debt with home equity as security

A debt consolidation home equity loan is a secured loan where your property will be security against the loan. The lender will have a lien on your house until you pay off the home equity loan in full. While you'll continue to own your home as loan collateral, the debt consolidation loan will keep the creditors away and keep you out of bankruptcy. You'll be able to save a little, because the single monthly payment will be considerably less than the sum of the ones you had before.

The first thing to do once you've obtained your debt consolidation loan is to look over the use of your credit cards, so that you don't use any of them in times of temptation, thereby increasing your debt. This will definitely put you right back in hot water.

Tax deduction and home equity loan consolidation

Another possible advantage is that interest you pay on your equity debt consolidation loan may be tax deductible. Normally, if you add your first mortgage to a new debt consolidation loan, and the total does not exceed 100% of the appraised value of your property, the interest you pay will be fully deductible. Your tax consultant can advise you on the matter, and it's always a good idea to check with him or her.

Debt Consolidation: Now's the Time

Debt consolidation: Loosely defined, it's the act of combining several loans or debts — usually credit card debt — into one low payment. This can offer two big economic advantages: Lower interest rates and greater simplicity. Both are goals to work toward, and both are decidedly achievable. But how?

Here's the short-term solution: Consider a debt consolidation loan. It can cut those numerous high-interest debts down to size into one low-interest loan with one fell swoop. But exactly who qualifies for a debt consolidation loan? Do you have to own a home or not? And what about equity...? There's a little confusion. Let's clear this up.

Learn more about consolidating bad debt.

Debt Management: The Road to Freedom

Is it possible to climb out of a high-interest hole and onto the surefooted debt-free ground above? Certainly! But you may have to rethink your lifestyle with a little prudent debt counseling. (Did you really need that second plasma set so soon? Perhaps not.)

But there's no need to think in Spartan bread and water terms. You can live a rich life while receiving the debt relief your bank account is crying out for. Think of it as placing your money on a healthy diet and exercise regime. There may be a few aches and pangs as you first start to adjust, but you'll soon be feeling great as all of that accumulated personal debt simply melts away.

We've laid out several important steps to not only eliminating debt, but keeping its ugly head from rearing in the future as well.

Debt consolidation: cure or continued credit problems? By Jenny McCune • Bankrate.com

Interest rates haven't been this low for decades, tempting some consumers to take on additional debt to ease existing credit woes. The goal is to consolidate various higher-interest balances into one, easier-to-handle and less-costly package. But be careful of what looks to be a quick fix. "You're getting symptomatic relief, not a credit cure," says Chris Viale, general manager of Cambridge Credit Corp., a nonprofit credit counseling agency based in Agawam, Mass. This fighting-fire-with-fire approach can take several forms. There are debt-consolidation loans, balance transfers to a zero-percent credit card and home equity loans or lines of credit. But, says Viale, 70 percent of Americans who take out a home equity loan or other type of loan to pay off credit cards end up with the same (if not higher) debt load within two years. Viale's statistics underscore a major problem with debt consolidation: It feeds upon the tendencies that got you in trouble in the first place. By taking on yet another creditor, you're adding the proverbial fuel to the fire. In this case, it's your money that's burning. Plus, if you've taken on so much debt that you're looking for more as a solution, chances are you won't qualify for the very low interest rates you see advertised. Those generally go to people with stellar credit ratings. However, if you're at the end of your credit rope or swear that this time you'll be more disciplined, debt consolidation may be something to consider despite its risks. Here are some popular forms of debt consolidation, how they work and a look at their pros and cons. Home equity loan or line of credit Home equity lines or loans often are touted as a quick and easy way to get out of debt. By leveraging your residence's value, the pitch goes, you can get money to pay off other bills and a tax break, too. But borrowing against your house can backfire. The biggest risk: You could lose your home if you default on the loan. "Some hardship occurs and now they have double the debt and if it's secured by their home, they could lose it," says Diane Giarratano, director of education at Garden State Consumer Credit Counseling in Freehold, N.J. And while equity loan interest generally is tax deductible, it could be limited in some situations. Even when it does provide a tax break, Cambridge's Viale says "that doesn't mean it makes fiscal sense." Giarratano agrees. "Banks will tell you how much you can borrow," she says. "That doesn't mean you should borrow the total amount, but that's what people do." Still, a home equity line of credit or loan to pay off creditors can work for some debt-burdened homeowners. Just be sure to do your homework to guarantee that the home equity dollars and cents make sense. This Bankrate calculator can help your determine whether borrowing against your home's equity is a wise move. Zero-percent credit card What about people who don't own a house? In these cases, many turn to zero-percent credit cards to reduce debt. Again, prudence and discipline are required. Companies offer these rates as teasers -- enticements for you to switch credit card vendors. Much of the time, card companies target consumers with better credit, so that may leave someone struggling with debt without this option. Even if you do qualify for a zero-percent or similar single-digit rate, it won't last forever. Make sure you know when it will end and what the rate is expected to jump to when it does. The low rate also lasts only if you pay on time. One late payment and the credit card company will jack up the rate. Also look for hidden fees and charges that can increase the actual cost of credit. "It's a short-term fix," says Viale. "The only way it works is if you are really meticulous about paying it and stay on top of it and then move onto another credit card before the low interest rate expires." Opening new credit card accounts every six months, however, could negatively affect your credit rating, he cautions. And to successfully lower your debt load, you'll need to pay far more than the smallest amount the card company will accept, especially after that zero rate disappears. "Paying the minimum for a $20,000 debt won't cut it," notes Viale. Bankrate's minimum payment calculator illustrates Viale's assessment. Say, for example, you transferred $20,000 of other debt to a zero-percent card and paid $1,000 on it by the time the rate jumped to 14 percent. If you make only the minimum monthly payments, it will take you 1,134 months -- or 94.5 years -- to erase your remaining $19,000 balance. If you live that long, you'll pay $64,805 in interest. And that's presuming you don't charge another thing during that time. Debt consolidation loan Did the credit card computations scare you into looking for another option? There's always a debt-consolidation loan. Offers for these financial products are an e-mail box staple. Chances are you get a dozen or more everyday suggesting this as the solution to your growing debt problem. A major appeal of consolidation loans is convenience. Instead of paying 20 different creditors who are charging different rates at different times of the month, you take out one big loan and pay off all those accounts. Then you make a single payment on that loan once a month. But ease doesn't automatically translate to savings. Before you sign on the dotted line, be sure that the costs of the new, bundled loan will truly be less than what you're already paying various creditors. For many consolidation-loan candidates, their current credit woes mean they won't get the lowest-available interest rate. Plus, when there is nothing to secure the loan (such as your home), expect the lender to bump up the rate. Calculate interest and fees on all your existing accounts to determine the total of the payments you now make. Then compare those amounts with the consolidation loan numbers to make sure it truly is a better choice. And, as with any product, shop around. The bank down the street may offer an attractive loan rate, but a check of your local credit union could turn up better terms, says Deborah McNaughton, author of "The Get Out of Debt Kit." "Credit unions also tend to be more lenient than the banks," adds McNaughton. Managing, not adding, debt Viale is a much bigger fan of debt management, which isn't a surprise since he heads up a debt management firm. But McNaughton and other experts also point to credit counseling instead of shifting debt as the way to go. They favor debt management because it costs less and is quicker than a debt-consolidation loan. Viale says someone owing $20,000 would end up paying $6,000 to $8,000 in interest and fees and be debt free in four to six years by using a credit counselor. If that person took out a 15-year home equity loan at 10 percent (because his credit wasn't good enough to get him a lower rate), Bankrate's loan calculator shows he'd end up paying $18,686 in interest on top of the twenty grand he borrowed. But if you just can't get a handle on your bills by yourself, you should explore credit counseling. Getting professional help in managing your debt can help you change your credit behavior. People that have taken on too much debt tend to go into denial; they'd rather not know how much debt they owe. A professional debt manager will make you face up to your obligations. Credit counseling agencies also force you to stop racking up debt. In exchange for consolidating your debt and working with your creditors to reduce your payments, credit counselors require you to give up your credit cards. Credit counseling, however, is not without its costs. One downside is that your reduced payment plan will probably show up as a mark against you on your credit report. Even though your creditor agreed to the reduced payment, you technically did not pay your account as called for in your original credit agreement. An even more costly potential pitfall is the disreputable debt counselor. As this Bankrate story points out, some credit counseling and debt-consolidation companies are only interested in making a quick buck on debt-ridden consumers. Some firms offer shoddy service at sky-high fees. Others are out-and-out scams. To find a reputable firm, verify certifications or third-party registrations. Check with the Association of Independent Consumer Credit Counseling Agencies or the National Foundation of Credit Counseling to see if the service you're considering is a member of either group. Also ask the service for references and then confirm them. Make sure that the debt management or credit counseling firm answers all your questions and that you have a firm understanding of how the process will work and what it will cost. If the company won't give you straight answers or you don't understand what's going on, don't sign up with that company.

Debt help that isn't

Debt help that isn't
By Lucy Lazarony • Bankrate.com

Asking for help when you have too much debt and not enough money isn't easy.

But if you trust the wrong company, getting help could be downright dangerous to your wallet and your credit rating.

A slew of credit-counseling and debt-consolidation companies looking to make a quick buck by preying on stressed-out, financially vulnerable consumers have opened shop. Some companies are guilty of shoddy service and sky-high fees. Others are out-and-out scams.

"We've got a lot of shady operators. Why are a lot of shady people getting into the credit-counseling business? Because that's where the money is," says Travis Plunkett, legislative director at Consumer Federation of America. "Business is booming."

It's easy to see why. As a nation we're wrestling with more than $744 billion in credit card debt. Toss in a sluggish economy and rising unemployment and it's no wonder so many American families are turning to these types of companies for help. But you'll want to choose that help carefully.

Marilou Austin of Garden Grove, Calif., needed help with more than $30,000 in credit card and store card bills. In July, she called Gibson Trust Inc., based in Pompano Beach, Fla.

- advertisement -

"They said they would deal with the creditors. The creditors would lower the interest rates and in three years my debt would be paid off," Austin says.

All Austin had to do was send a monthly payment to Gibson Trust and they would pay her creditors.

Only they didn't.

"I sent almost $2,500 and nothing went to my creditors. They took all my money," Austin says. "I think they paid about $40 to Wal-Mart and that's about it."

Gibson Trust has been charged with violations of the state's Deceptive and Unfair Trade Practices Act by the Florida Attorney General.

Representatives of Gibson could not be reached for comment.

Austin's credit rating took a beating. By November, creditors were calling and demanding four months of missed payments.

The mother of two, who had never missed a payment before, now has black marks all over her credit. And because several of those unpaid accounts were joint accounts, her husband's credit is marred as well.

Their credit score, which once topped 800, has fallen below 500.

"It's hard. Sometimes when I think about what happened I just want to cry," Austin says.

"We tried to do this program to have a better life and now it's worse."

More and more Americans are walking away from debt-counseling companies unsatisfied. Some, like Marilou Austin, leave with deeper financial wounds than when they started.

Grievances on the rise
Complaints against credit-counseling agencies and credit-management companies have skyrocketed in the past three years.

In 2000, complaints against credit counseling and management agencies totaled 404 and complaints against debt-consolidation companies reached 653, according to the Council of Better Business Bureaus.

In 2002, in e-mail traffic alone, 1,055 consumers lodged complaints against counseling agencies and another 1,819 consumers complained about debt-consolidation companies for a total of 2,874 complaints. This does not include written and phoned-in complaints made that year.

"It's burgeoning," says Holly Cherico, a spokeswoman for the Council of Better Business Bureaus in Arlington, Va.

In 2004, the mounting complaints reached the ears of state and federal officials. The Massachusetts Attorney General's office sued Cambridge Credit Counseling Corp., alleging that the "agency funneled millions of dollars to insiders and misled consumers into paying high fees." It also reached a $650,000 settlement with a Florida-based telemarketer, Integrated Credit Solutions, Inc., of Fargo, Fla., which officials accused of misleading consumers into buying high-cost credit counseling services.

At the federal level, House and Senate committees held hearings into the profitable nature of some in the nonprofit credit counseling industry. The Senate's Committee on Governmental Affairs titled its scathing report, "Profiteering in a Nonprofit Industry: Abusive Practices in Credit Counseling." Two federal agencies took aim at one of the largest national independent credit counseling companies, AmeriDebt Inc. The Federal Trade commission sued the Germantown, Md.,- based firm, accusing it of deceptive practices. In September, the IRS got into the act, according to the Washington Post, which reported (registration required) that the tax agency had hit the company with a claim of $15 million. It is one of 50 companies whose tax-exempt status is being reviewed.

What's the fuss about? High fees and the questionable handling of debt-management plans.

Most debt-counseling agencies are nonprofits that get much of their financial support from the credit card industry. They offer an array of services, including debt-management plans.

When you enroll in a debt-management program, you write a monthly check to the credit-counseling agency and the agency pays your creditors. In a typical debt-management program, a card issuer will charge lower interest rates, stop charging late fees and contribute money to the debt-counseling agency.

A debt-management plan usually lasts three to four years. The consumer generally gets reduced interest rates, lower monthly payments, no more late fees and fewer calls and letters from bill collectors. Debt-counseling agencies get their operating money by receiving a percentage of each client's payments back from creditors.

But some debt-management programs aren't on the up and up. Some agencies charge upfront fees as high as 3 percent of a consumer's total debt.

Other agencies pocket the first month of credit payments for themselves. So right off the bat, you're a month behind. The result? Your credit accounts get slammed with late fees and penalty interest rates.

"Instead of you being current, you're a month behind," says Maxine Sweet, vice president of consumer affairs for Experian.

"A lot of consumers are getting surprised by that. If it's in the fine print, they're not reading it."

To stay current, you would have to pay your monthly credit bills on your own on top of the agency's hefty, upfront fee. That means two months' worth of creditor payments in a single month.

"That's very difficult for someone in debt and struggling to do," says David Jones, president of the Association of Independent Consumer Credit Counseling Agencies (AICCCA). "We consider that to be a very unscrupulous practice."

And how's this for an unscrupulous practice -- some agencies fail to make payments to their clients' creditors on time or at all, resulting in more late fees and penalties for consumers.

There are reputable agencies
Now there are plenty of reputable credit-counseling agencies that assist people with all kinds of money problems. They also charge low fees for debt-management programs and other services.

They include members of the AICCCA and the National Foundation of Credit Counseling, the oldest network of nonprofit counseling agencies.

The AICCCA caps enrollment fees for debt-management plans at $75. Monthly service fees are capped at $50. Many member agencies charge fees well below these caps.

Members of the NFCC, whose agencies are mostly known as Consumer Credit Counseling Services, charge an average enrollment fee of $19 and an average monthly service fee of $12 to clients that enroll in debt-management plans.

So it is possible to find a cost-effective, debt-management program. But it's also important to realize that a debt-management plan is not the best strategy for everyone with debt woes.

At the NFCC only about one-third of all clients qualify for a debt-management plan. Only about one-quarter of clients of AICCCA enter plans.

Some over-the-phone counseling companies try to push everyone that calls into a debt-management plan.

"They're not doing counseling. They're doing enrolling," says Eric Friedman, an investigative administrator with Montgomery County Consumer Affairs in Maryland. "They're collection services turned upside down."

And collecting your money is their primary goal.

"The first thing they want is authorization to take money out of your checking account from day one," says Carol Wagner, a certified credit counselor with Consumer Credit Counseling Service of the East Bay.

Don't be persuaded.

"Firms that simply shove you into a debt-management plan because that's how they make their money are doing you a disservice if not outright ripping you off," Plunkett says.

Wagner, who worked as a credit counselor for 11 years, has helped many clients recover after bad experiences with shoddy or inappropriate debt-management plans.

"Something has fallen apart because the plan should have never gone through in the first place," Wagner says.

Some people simply can't afford a debt-management plan. Between the high fees and the monthly payments, they have nothing left to live on. Wagner has seen instances where half of a client's Social Security check was eaten up by an ill-advised debt-management plan.

"These people come in: 'How can I get my utilities turned back on?'" Wagner says.

For other people, cash flow isn't a problem. Getting a handle on their debt is. Wagner recalls one client who had $2,000 left over each month after he paid his monthly bills and other living expenses. But he signed up for a debt-management plan anyway.

It made things worse. The company he chose didn't pay his credit bills on time and he was getting slammed with late charges from all his creditors.

Some nonprofits charge high fees
If you think you'll steer clear of this kind of trouble by choosing a nonprofit counseling agency, think again. Some nonprofits charge high fees and others are run by people looking to line their own pockets.

Investigations have uncovered big salaries for nonprofit executives as well as some rather dubious relationships between nonprofit counseling agencies and for-profit businesses, including payment-processing companies.

In a few cases, the same person ran the counseling agency and the for-profit business. In other instances, a nonprofit agency's executive was steering business to a for-profit company run by a relative or crony.

So regardless of what all those warm and fuzzy ads might say, not every nonprofit counseling agency has your best interest at heart.

"Consumers immediately let their guard down and think they're all good guys, and they could be funneling money to a related, profit-making company," Friedman says.

Wondering why there isn't a law to keep debt-counseling companies in check? There is, at the state level anyway.

About half of the 50 states have some kind of licensing requirements for debt-management companies. But most of these states exclude nonprofit agencies from these requirements.

"The laws for the most part are very general and often make the assumption that if it's a nonprofit it's OK," says Deanne Loonin, staff attorney at the National Consumer Law Center in Boston.

And since there's no federal oversight of counseling agencies, it's very much consumer beware when it comes to selecting credit management help.

"Research nonprofits as you would any other business," says Marta Moakley, assistant attorney in the Florida Attorney General's Office.

"There's no guarantee that their business practices are legitimate."

For help in selecting a credit counseling agency or debt-management company, check out tips on Bankrate.com.

Remember your credit record is your responsibility.

"It's ultimately their credit history that's at stake here," Moakley says. "They need to take any problems very seriously."