The human reaction to extreme financial difficulties due to debt are unfortunate, but fairly consistent. Feelings of panic or desperation are often underlined by feelings of depression that come with the debt trap. What's worse is that there are always going to be people who are there to take advantage of your desperation to offer you a quick fix. What they always neglect to mention, however, is that this quick fix comes with a high price. Some companies literally profit off of other people's misery, either by dressing up a bad deal to appear good, or by charging you for what amounts to nothing but fraud.

Our staff has discovered a number of these such offers over the years, and do our best to keep clients informed. Here are just some of these dubious offers and how they can affect you.

#1 Credit Repair Practitioners
The way these companies work is they promise to "clean" your credit report for a fee which can range anywhere from $30 - 500. The truth is, however, is that no company can remove true information from your credit report. It is impossible. The only real healer when it comes to your credit report is time itself. US laws dictate that no entry can stay on your credit report for more than seven years, with the exception of bankruptcy, which can remain anywhere from 10 years to 15 (depending on Chapter 7 or 13 filing).

As with anything, it is quite possible that your credit report currently shows an error or two. If this is the case, there are facilities you can consider to have those remarks removed. You may not have to go this far, however, as most creditors are well aware that credit reports can include some errors and never base their lending decisions on one or two negative comments.

#2 Guaranteed Low Interest Loans
If ever you encounter an offer for a loan at an extremely low rate, "no matter your credit history", beware. This is not likely the offer of a legitimate company. As well, you should be warned that there are numerous fraudulent scams currently being practiced where these loans are "guaranteed", and all you need do is submit a "small application fee" (often $200 or more) to be approved. Avoid these offers altogether. No established financial firm would demand a fee up front simply to apply for a loan.

#3 Payday or Title Loans
When times are tough, many people turn to what are termed "payday loans" in order to meet their obligations. The way this process works is the borrower shows the lender recent pay stubs, and the lender advances cash based on a guarantee of payment. The key facet of these loans is that they are intended to be short-term. The real problem here is that the interest rates and fees are often more than 500%, depending on the loan and the time it takes to pay it off.

In many states, investigations of firms offering this type of loan have been launched, mainly because what this basically amounts to is legalized loan-sharking. Title loans have typically been under even greater scrutiny than payday loans, mainly because they use loopholes in state laws to charge annual interest fees which may be higher than 1000%! Collateral for title loans is always your car, hence the term "title loan". Avoid these loans at all costs.

#4 "Non-Profit" Credit Counseling
Credit counseling agencies are a necessary part of the debt industry. In fact, on many occasions in the past, we have actually recommended that our clients consider the services of a select few companies providing this service. What is at issue here is the confusing nature of Credit Counseling agencies' use of the term "non-profit" or "not-for-profit".

What many people do not understand is that the term "not-for-profit" is simply just another type of business organization. Many assume that these agencies are not interested in profit, when this is simply not the case. In fact, many of the largest organizations in the credit counseling industry managed to grow from humble beginnings fueled by their profits.

The key to not-for-profit credit counselors is that their services are primarily paid for by your creditors. Typically, this means they organize a plan for you in which interest rates are lowered, but at which your debt level remains the same. Then, they basically extend the length of your debt payment plan to ensure smaller payments. This is exactly what your creditors want, as they lose very little over the long term. As a result, credit counseling agencies typically are paid a 10-15% commission by your creditors. Obviously, this can mean upwards of several thousand dollars over the life of your debt plan.

The worst point about credit counselors is that despite what they may lead you to believe, they are actually working for your creditors. This means that they benefit by extending your debt payment plan because every time you make a payment, they pick up a commission. While some of these agencies are quite ethical, we have also encountered many which are not. In fact, many Credit Card Debt Consolidators' clients end up becoming clients after bad experiences with such agencies.

#5 The Home Equity or Second Mortgage Loan
If you own a home and have contributed a significant amount of equity to it, a home equity loan may be something you are considering. However, if you are using this loan to pay off credit card debt, it could be a tremendous mistake. This is because Home Equity Loans are secured loans, as opposed to credit cards, which are in fact unsecured loans.

Effectively, the difference is that "secured" loans mean that your creditor may seize property if you default on the loan. An unsecured loan does not give your creditor the ability to seize anything. It is critical that you understand the difference, because if your debt problems get to a state where you cannot pay off your home equity loan, you can lose your home. Not so with credit card debt, however, as this form of debt has no personal property attached to it.

If you are having difficulties meeting your debt obligations and are considering bankruptcy, be sure to contact us here first.

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