Thursday, 1 July 2010

Finding The Best Debt Consolidation Company And Avoiding Getting Scammed

Jake was deep in credit card debt. And the strain was showing in other aspects of his life although he was trying his best to keep it secret. Even so, he kept his minimum payments up to date. But it was stressful. So he decided to enroll with a debt consolidation service.

The company Jake signed up with had been running commercials on TV on a regular basis. They claimed to be nonprofit. With the word nonprofit you can't go wrong right? Not so fast.

As usual with debt consolidation, Jake was required to close all his revolving (credit card) accounts and to not establish new credit for the next three years. Not a problem, he thought: anything to get out of debt. He was also advised to stop making payments to his creditors and start sending payments to the company.

The first payment, he was told, would go to the company. Jake would have to "find a way" to hold his creditors off for that first month. He would also pay the company a monthly fee on each account. This caused his total monthly amount to balloon, but the company convinced him that would change since his interest rates would go down significantly after three months of making timely payments. Not so bad, after all.

Then the company went bankrupt. It was at this time, about four months down the road that Jake found out that none of his payments had ever been paid out to his creditors. His credit was ruined and now he had accrued late fees and over-limit fees.

While finding the best debt consolidation company can be overwhelming, it is crucial to your goal of becoming debt-free. Scams companies are galore, and you could find yourself ruined.

Here are 5 points that hopefully will help you make the right choice:

1. The National Foundation for Credit Counseling and The Association of Independent Consumer Credit Counseling Agencies are two organizations that can help you find reputable nonprofit credit counseling and consolidation companies.

2. Avoid companies that charge high up-front fees. Most reputable companies do charge up-front fees. If they ask for cash before speaking with you, run.

3. Everything should be laid bare including all fees, what will be done for you, and how the funds will be used. If you detect the least amount of vagueness, run.

4. If the company promises to wipe out your debts right away or remove negative items from your credit report, walk away. No one can just wipe out your debt overnight. Similarly, no one can remove negative items from your credit report (at least nothing that you can't do yourself).

5. There's no such thing as free lunch, even in debt consolidation. If the company promises to help you for free, be very suspicious.

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