Not all debt consolidation is created equal
As the economy is not in the best of shape, a lot of people are looking to divest their debt. Getting a better interest rate thanks to mortgage loan modification is not a bad way to go, and some people looked to get some instant cash with a second mortgage to pay off other debts. When the market began to tank, that’s when those strategies started to backfire. True debt settlement relief may be harder than you think, and you have to be very careful about who you contract to help you.
Hard to fix debt with more debt
Before the real estate market took a nosedive, it was common for people to either refinance or take out second mortgages to pay other debts, such as their credit cards. This only borrows from Peter to pay the debt with Paul. If you can get a mortgage refinanced to the market rate, currently less than 5 percent, that can be helpful. However, according to Newsday, that is if you have the credit rating to qualify. So if you have any negative dings on your credit score, you may not be able to get a cash advance from your budget with a lower rate if you can’t qualify.
Beware wolves clothed as sheepish debt counselors
You also have to be careful of who you go through for debt consolidation. You may be better off if you get a personal loan to do it yourself. There are plenty of non-profit agencies, such as the National Foundation for Credit Counseling, that can help you out of debt. These services are often free, so you won’t necessarily be sent running for payday loans to pay for help getting out of debt. Also, getting a debt consolidation loan at a higher interest rate than the debt you already have because of your credit rating guarantees paying more in the end.
FTC to tackle dirty debt practices
Financial reform has been in the air for some time. One of the big projects for the Federal Trade Commission is quashing crooked debt relief services. According to the Washington Post, a debt consolidation service can’t charge a fee in advance and has to disclose all potential costs to customers.