Debt Consolidation Loans For Bad Credit

Debt Consolidation Companies

If you're up to your eyeballs, the fantasy of the debt consolidation companies debt consolidation loans for bad credit can suck you right in. Watch out for the slippery side of consolidation loans, balance transfers and other 'easy fixes.'
 
The phrase "debt consolidation" has always had a magical ring to me.

 As if somehow, someone would have the power to mush my debt into one neat little package, which by some incredible financial alchemy would also then shrink the debt itself -- and I'd only owe a hundred bucks or so.

Debt Consolidation Loans For Bad Credit

I know I'm not the only idiot who's had this fantasy, because an entire industry has sprung up to support it: The Debt Consolidation Industry and Covert Sting Operation. Every day, I get at least one piece of regular mail offering me low-interest balance-transfer deals for credit-card debt, or arm-twisting e-mail from unknown credit organizations that scream things like:
· "DEBT RELIEF IS JUST A CLICK AWAY!"
· "CUT YOUR MINIMUM MONTHLY PAYMENTS BY 50% OR MORE!"
· "Debt Consolidation Companies can SLASH YOUR INTEREST RATES DOWN TO ZERO!"
These promises are incredibly alluring to anyone who is caught in the quicksand of having too much consumer debt, and who will believe anything, do anything -- click her ruby slippers (bought on sale for just $400!) three times -- to make it go away. But before you start skipping down some financial yellow brick road to see the Wizard of Debt Consolidation, remember this: Watch out for those flying monkeys.

Three bad debt-consolidation moves:

1) The Hard-Money Loan
"The biggest myth about debt-consolidation loans is that they're easy to get," says Scott Kays, president of Kays Financial Advisory Corp. and author of "Achieving Your Financial Potential." If you really need a loan, it's probably because you've already missed a few payments and your credit history has more dings in it than a '74 Ford Pinto.

And that's the problem. Kays says that if you are a credit risk, the consolidator may entice you with promises of an easy-does-it loan, and end up charging you higher interest rates than you're paying now -- as high as 21% or 22%. "Your monthly payment may be lower" with one of these loans, "but you'll end up paying more," says Kays.

2) Debt Consolidation Companies Who Promise to Take Care of Everything - The Debt Consolidator
This is the fairy godmother fantasy. This Nice Big Debt Consolidation company comes along and swears they'll make your life so much easier. They'll negotiate lower interest rates, reduce your monthly payments -- and all you have to do is make "one EZ payment."

In reality, many debt consolidators build in a fee as part of the monthly payment you make to them. It's usually about 10% of the payment (i.e. about $40 on a $400 monthly payment). They pass along your payments to the creditor -- some debit directly from your checking account -- and get back a 10% to 15% slice that the relieved creditor is only too happy to rebate to the consolidator.

Is it worth paying someone else to do what you can do on your own, i.e. negotiate lower interest rates and stretch out your repayment schedule and pay off the highest-interest debts first?

To desperate ears, this might sound like an ideal solution, especially when you talk to these people and they scare the heck out of you. I interviewed two, Cambridge Credit and Counseling Services and Integrated Credit Solutions. Each offered similar services, and I don't recommend either of them. The senior credit counselor I spoke to at Integrated told me, in grave tones, that it would take me 379 months -- or 32 years -- to pay off my debt. With their services, however, they would "save me 27 years," and I could pay off my debt in just 53 months, or about 4 1/2 years.

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