Debt Consolidation Refinancing - What's in the small print?

You must do yo your homework before signing up with any debt consolidation refinancing company. Here are some things you can do to safeguard yourself.

Run a check with your local consumer protection agency, state Attorney General and the Better Business Bureau to see if there is any consumer complaint about the debt consolidation firm you have in mind to use. However, be aware that just because no complaints are on file does not mean that they are legitimate. Ask your state Attorney General if debt consolidation companies need to be licensed in order to work in your state and, if so, check their license status.

Ask the debt consolidation company for full details (in writing) of the terms of any debt consolidation loans, including any establishment fees, interest rate, early repayment penalties, security or collateral required, whether you are required to file for bankruptcy to obtain the loan, etc. Before you sign a contract, be sure it specifies:

• Payment terms including the total cost of your debt consolidation loan.


• A detailed description of the services the debt consolidator will perform.


• The promised result and the time frame it will take to achieve this.


• Any guarantees promised verbally by the debt consolidation company.


• The debt consolidation firm’s name, business address and contact details.
  

It is of paramount importance to insist on written terms and conditions. It is usual for these documents to be written in complex legalese - if anything is unclear, make it a point to seek clarification and have the terms confirmed in plain language that you can understand. Get everything in writing, and read the fine print of your contracts carefully. If any warning signs come up, it is better to trust your instincts and avoid that particular debt consolidation firm.

When all the debt consolidation refinancing costs are added up, you may find that it is not the right solution for you. How do you decide if debt consolidation refinancing is or isn’t right for you? I will step you through what to look for in my next blog. In the meantime, watch out for scam artists and do not sign any document if you do not fully understand what it means or feel uncomfortable about doing so. And keep cultivating your new spending money wisely habit!

Debt Consolidation Refinancing - Who to avoid?

There are many companies offering debt consolidation refinancing services. Some are legitimate and reputable, while others are really scam artists dressed as debt consolidators. How do you differentiate one from the other and identify the genuine debt consolidation firms?

Here are some telltale signs of debt consolidation firms you should avoid:

• Promises that your debt problems will magically disappear.


• Claims unbelievable almost 100% success rate – anyone can be approved, no matter how bad their credit history.


• Advises you to stop paying your creditors.


• Imitates legitimate lenders and government agencies and implies they are official.


• Advertises over the top, too good to be true offers.


• Makes you phone a ‘900’ number to get information, application forms, etc.


• Charges high establishment fees.


• Takes a long time to come back to you with answers or do not give you complete answers or fudge their replies.


• Refuses to give you written terms and conditions of the debt consolidation refinancing loan.


• Guarantees you a debt consolidation refinancing loan provided you pay them an advance fee. While many legitimate firms charge an advance fee for processing the application or completing an appraisal, they would not guarantee or even imply that approval is likely. A debt consolidation firm that tele-markets to you and guarantees or represents that your chances of obtaining a loan or some other extension of credit is, under the Federal Telemarketing Sales Rule, prohibited from asking for or accepting any payment from you until you have received the loan.


• Promises to clean up your credit history for a fee. If your credit rating is damaged, only diligent effort on your part is going to help you repair it over time. Disputing accurate poor credit history to falsify your credit rating and using that false information to apply for a loan can end up with your committing a federal offence.

Read my next post to find out what questions you need to ask (and get clear answers on) before signing up with any debt consolidation refinancing company. Oftentimes, it is the small print that causes the most problems – make sure you read and understand them!

Debt Consolidation Refinancing - What to do before applying?

f you're considering debt consolidation refinancing, it is likely that you are struggling financially. What can you do to prepare yourself so you get the best possible deal when you actually apply for debt consolidation refinancing?

Here are some things you can do:

1. Start budgeting right away. Examine your spending habits to see where you can cut down on expenses. It may be something as small as a cup of coffee a day or a pack of cigarettes. Acquire a new habit of waiting till the next day before you buy that "to die for" item. Chances are you won't even like it tomorrow and would be having buyer's remorse now had you bought it yesterday!


2. Make a list of all your debts so you know how much you owe to whom, the amount overdue on each debt, the dates of future repayment instalments, the interest being charged on each debt, the balance outstanding on each debt and whether it is secured or unsecured. Secured debts are usually non-negotiable as the lender has recourse against the property used as collateral (security). Unsecured debts are more negotiable as the lender is in a vulnerable position and would rather get back a reduced amount than nothing at all.
   


3. Use the savings from budgeting in Step 1 above to pay off secured debts first or to keep the repayment instalments current, then apply any surplus to the highest interest debts or small debts that can be paid off completely.
   


4. Use cash only for all your purchases. Stop buying anything on credit - cut up your credit cards. If you have to put it on your credit card, it means you cannot afford it and if you cannot afford it, you should not buy it. Pure and simple logic!
   


5. Make a list of all your income, expenses, assets and liabilities as you will be asked to furnish this information when you apply for debt consolidation refinancing. When you are prepared with the answers and come across as switched on, you will be looked upon more favorably than someone who has no clue about their finances - this could possibly improve your chances of getting approved.
   


6. Save at least $1000 to put aside as an emergency fund. Look for seldom-used luxury consumer goods on your list of assets. They can be things like expensive stereo equipment, kitchen gadgets, roller blades, ski gear, cameras, designer clothing, etc. When was the last time you used them? Any item that you haven't used for more than six months is probably non-essential. Auction them off on eBay to get some funds in. Note: Make sure there is no finance contract specific to that item still in force, as it would be fraudulent to sell something that you do not own outright. Put the money from the auctions (topped up with money saved from cutting down on expenses, if necessary) into the emergency fund. Channel any leftover money from the auctions towards paying off debts.


7. This step is not recommended - do this only if you are unable to save for the emergency fund and have really valid reasons to do so and use it only in an emergency. If you feel it is absolutely necessary to have access to some form of emergency credit, then apply for a new credit card before you start the debt consolidation refinancing process. You will not be able to get credit once you start the debt consolidation refinancing ball rolling. Needing a new outfit for a party is neither a valid reason nor an emergency! A sick child needing immediate medical attention that you cannot get for free may warrant use of the credit card. Even so, you should negotiate terms with the medical center first - after all, they have an obligation to save lives first and foremost.
   

Okay - so you have done Steps 1 to 6 (and hopefully not Step 7) and are now ready to seek out debt consolidation refinancing. With so many firms offering debt consolidation loans, how do you assess who can be trusted and who to avoid? I will talk about this in my next blog. In the meantime, keep to your budget. :-)

Debt Consolidation Refinancing

Debt consolidation refinancing is especially useful if you are currently paying high interest rates on your debts, such as credit card debts. So, what exactly is debt consolidation refinancing and how does it work? As the term suggests, debts owed to various credit providers are combined (consolidated) and refinanced by a single credit (loan) provider who pays off all the other credit providers. You end up with just one loan from one credit provider, usually with a lower monthly repayment amount and lower interest rate. Besides easing your cash flow, this should also cut down the amount of time spent managing (or not managing!) your budget.

When evaluating a debt consolidation refinancing offer, it makes sense to shop around to find the best deal in relation to your circumstances. Although, the usual objective is to negotiate a lower interest rate and lower monthly repayments, this may not necessarily be the best deal for you. There are other criteria to consider such as whether you can actually afford to pay more per month (if you can, go for it), early settlement penalties and default charges to name a few.

A word of caution. Lower monthly repayments are usually achieved by spreading the term of the debt consolidation refinancing over a longer time frame. Depending on the interest rate, you could end up paying more interest over the life of the loan. If you are struggling to make ends meet at the current level of repayment and are having sleepless nights, this may be a price worth paying for the peace of mind that debt consolidation refinancing could bring. Before you rush into this, it would be prudent to sit down with a cup of coffee (or tea if you prefer) and have a good look at your expenses to see where you can trim your costs and maybe even if you could sell some non-essential luxury purchases to reduce your debts. You may be pleasantly surprised at how a bit of restraint and sacrifice can improve your finances dramatically!

There are many debt consolidation service providers around and you can approach a few of them to compare their offers. This assumes that your credit rating is respectable and debt consolidators are willing to take you on as a risk. What if your credit rating is poor? Well, this requires a different approach and I will cover this in a separate blog later on.

My next post will cover the things you need to do to successfully obtain a debt consolidation refinancing package. Stay tuned!