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
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
#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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