Beware of debt relief companies; some are legitimate, but some are trying to sell you a jackalope. Image from Wikimedia Commons.

Televisions and e-mail in-boxes have been flooded with ads for debt consolidation loans and debt relief. In order to crack down on fraudulent practices, the government has enacted stiffer regulation on debt consolidation services. Consumers should make sure they aren’t putting instant cash into the wrong hands.

FTC cracks down on debt relief fraud

As the Great Recession began, companies began springing up all over the place, offering fast debt relief and debt consolidation loans. All a customer had to do was hand over an upfront fee and make monthly payments, and their debt would be gone before they knew it. A lot of these companies turned out to be taking a cash advance for services that were never rendered. After a lot of complaints to the Federal Trade Commission, new rules were imposed in late October. However, abuses have continued, and attorneys general in several states have been filing suits against the impostors. A common scam is to ask for some money now for a retainer and say a staff attorney will get a person the debt settlement relief he or she needs, according to the Financial Times. Then, the “company” pockets the cash and never settles a thing.

Be careful with debt relief programs

If something seems too good to be true, it usually is. If a person is thinking about consolidating debt through an agency, there are a few things to watch out for. If a company asks for an upfront fee for debt consolidation, it’s probably a scam. There are plenty of non-profits out there that help people with debt management. Always check out a potential debt settlement company with the Better Business Bureau and the National Association of Financial Advisors.

Things you can do in the meantime

If you’re trying to get rid of debt like personal loans, installment loans, or credit cards, there are always things that can be done. Some creative budgeting always helps or payday loans if a buffer is needed.

Since DVD has replaced VHS tape, rental stores like Blockbuster have been losing ground. Image from Wikimedia Commons.

Blockbuster Video has filed for bankruptcy, as diminishing returns and mounting debt have put the company out of the reach of any loan modification. The company has been predicted to fail for years. Since the advent of Netflix and Redbox, people have been able to get the DVD of their choice faster, and for less instant cash for rentals. The video rental chain is losing ground in the U.S., but still does fairly well worldwide, but the international branches filed for the same protection as well.

Blockbuster wants to rewind on debt

The biggest reason for Blockbuster going bankrupt, besides losing a lot of revenue, is that the company has a lot of debt. The company is filing for bankruptcy, according to the Christian Science Monitor, to get a little debt relief. The company owes over $1 billion, and has not been able to keep up on the payments. Since there isn’t a loan lender that lends debt consolidation loans that big, the company has decided to restructure instead. Blockbuster Video will be trading shares for debts owed to creditors as part of the restructuring.

Losing ground

It has not been a secret that Blockbuster has been losing market share to Netflix, and also to Redbox. The selection that Netflix has to offer is gargantuan compared with Blockbuster. One of the complaints that has been lodged over time about Blockbuster and similar chains is that only popular movies are offered, instead of a wide and varied selection. Redbox doesn’t offer nearly the selection of Netflix, but is available in many locations and doesn’t require membership or having to drive too far.

Late fees canceled on debt payments

Blockbuster in the early 1990s was one of the largest video rental chains in the world. However, as pay per view and then DVD rental by mail became more prevalent, it started to lose ground. Blockbuster has tried to play catch up, but the company has yet to be able to regain lost ground.

Sources

Christian Science Monitor

Sometimes, getting out the calculator and getting creative with budgeting can create a little debt relief too. Image from Wikimedia Commons.

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.

Further Reading

Washington Post

Newsday

Do plenty of research before choosing a lender.

If you have chosen a secured loan for debt consolidation, there is a process you must follow. Whether you have chosen to apply for a secured or unsecured consolidation loan the processes is similar. The following steps will help you decide on what choice is best for you.

Begin assembling your personal financial information. Deciding whether debt consolidation makes sense for your individual situation requires you to take a close look at all your consumer debt. Gather your most recent copies of your loan payments, credit card bills and any other statements you want to include in your secured loan.

Consolidation

Once gathered your information can be copied into a single document that shows the total remaining balance and interest rate for each debt you owe. Make sure to include all debts, all balances and all interest rates.

While most consumers choose to consolidate all their consumer debts, now is the time where you can examine your list of debts and choose which debts you plan to include for your consolidation loan. If you choose to only include a few of your debts, make sure you include the ones with the highest interest rates.

Do the math

You now need to total the amounts of all debts you plan to include to establish the total amount of the loan you require. Make sure you include all debts to be satisfied by your secured loan.

It is now necessary for you to find an average interest rate by adding the rates of the debts you intend to consolidate and dividing them by the number of debts. For example, if you have three credit cards with interest rates of 16 percent, 17 percent and 18 percent equals 51 percent. Divide that figure by 3 and your average rate is 17 percent. The interest rate for your new secured loan should be much lower than 17 percent.

Secured or unsecured

Choosing the type of consolidation loan you will pursue will depend largely on whether you have assets that can serve as collateral. If so, it is generally best to get a secured consolidation loan. Conversely, you should likely get an unsecured loan if you have no assets to serve as collateral.

Armed with your financial information and a reference point of where you are, you can begin the process of consulting secured loan lenders. This process will allow you to quickly weed out any loan offers with an interest rate above what you determined to be your average interest rate. You should be able to find a lender that will have a lower rate available for you. It is just a process of seeking them out. Diligence and being proactive are the keys to successful search results.

Apply for your loan

The loan application process requires you to complete various forms containing your personal information. Since you have already compiled this information, this process should go quickly. Some secured loan lenders charge a loan application fee, but the cost should be minimal.

It is likely that you will get an answer on your loan application rather quickly, and you’ll either be approved or rejected. Getting a secured loan approved sets a course for getting out of debt. Don’t be dismayed if you get rejected. Not all lenders approve all borrowers. You can then pursue another loan with another lender, or you may want to consult a credit counseling service to determine why you were rejected.