The credit card industry is approaching the bottom the financial hole. Many of the credit card companies are going out of business. The crash of the housing market, followed by the economic recession, created the circumstances for the unsecured credit collapse. New businesses are getting started around this crisis. Those are “debt consolidation” and “debt elimination” companies. They both feed on the paralyzed credit card industry. Those “debt consolidation” businesses are in some kind of symbiosis with the credit card lenders.
When you talk to your lender about your financial hardship and ask for help, they refer you to a non-profit company (those are the debt consolidation companies, masked as a lamb). Non-profit sounds very noble. You go for it and put your life in their hands. They offer financial education, debt counseling and debt management. You have heard it all, but you hope for something extraordinary.
What actually happens when you sign up for this “consolidation” services? Here it is:
1. You provide a list of all of you credit cards and balances.
2. They talk to each credit card and lower you interest rate (less than 10%, but never 0%).
3. They tell you how much your new consolidated monthly payment will be.
4. You pay additional fee for the service (about $50 monthly).
5. You cannot miss a payment, because you will be dropped out of the program.
6. You cannot use the credit cards anymore – they are considered closed.
7. You end up talking to all of your credit cards and on top of it, with the new middleman.
8. When a credit card is paid off, the funds should be directed to another card. It doesn’t happen the right way if you don’t keep a close eye on the process.
9. Sometimes they can miss a payment on a credit card (it happened to me). The credit card lender still calls you.
10. Sometimes they can make a payment even if the credit card has been paid off!
11. Your lenders continue sending the statements to you. You have to forward those statements to your middleman to keep them up to date.
12. You end up with more paperwork and less results. The difference is that you pay for the newly created mess $50 every month.
13. They cannot lower your balances.
14. You have to be happy. If you are not happy and drop out of the program, you will be punished by all of your lenders. The interest rates will skyrocket up to 30% (I had one with 32.99%). You cannot prove that they did not do a good job. It is always your fault.
What will happen if you decide to use your own services? I assume that you can write checks and not rely on someone else to do it for you.
1. If you miss a few payments, your lender will offer the same program to you (even better – you can easily negotiate a zero percent interest rate).
2. You are in control and know where your money goes.
3. You save money and develop a self-confidence. You can take charge of your own financial affairs.
I really cannot comprehend why those debt consolidation companies exist. They do not do anything for you. On the contrary – they create more damage and chaos. Their product is a promise of “bright financial future”. The result is a big disappointment.
The best way to solve your debt is a settlement. And yes, you can do it yourself. Expect another article about this matter.
This entry was posted on Tuesday, March 30th, 2010 at 4:21 pm and is filed under Debt Consolidation. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
