The air waves are filled with commercials promising a program to reduce your interest rates, reduce your debt, and make your debt problem go away all with one low payment. In the process of writing my book Deceptive Money (link it), I had the opportunity to review many actual proposals and contracts from these companies. I have found these contracts and proposals to be extremely misleading. I also found some of the more seedy companies to be presenting fraudulent (my interpretation) contracts.
Here is what they don’t tell you in these proposals:
1) Your debt problem is not as bad they are telling you
The majority of the time I find that people who are talking to debt consolidation companies don’t have as bad of a problem as they might think. Further, by utilizing the strategies in my book Deceptive Money (link it), they can get out of debt doing it the right way. The best way to get out of debt is by not taking perceived shortcuts and doing it yourself.
2) You will hurt your credit score
Once you enroll in these programs, credit card companies close your account. Once all of those accounts start closing your score will drop. This negatively effects the credit utilization ratio. That is best case. Worst case scenario is the credit card companies add additional negative information to your account as well as decide to take action against you.
3) You could go from Current to Collections
Often times, they act as if all creditors are happy to participate in the debt management program. However, that is not the case. A credit card company could just decide close the account and send you to collections. One minute you are current on your payments and the next minute you have a closed account in collections.
4) It could take much longer than illustrated in the proposal
Everything they give you in a proposal is based on very positive (unrealistic) estimates. They will show you out of debt in 5 years. Well, the reality of it is that credit card companies are completely in control and in charge and have the final say in everything. They can change the rules whenever they want. This wildcard more than likely extends the payment way out into the future.
5) There could be legal ramifications for taking part in a debt consolidation program
As stated earlier, a credit card company could chose not to participate in the program and take actions against you. If they consider the account in default, they have one of two avenues of collection. First, they could use an outside debt collector as stated above. Second, they could file a lawsuit against you with the objective of being awarded a judgment. With that judgment, they gain a tremendous amount of power over you in form of collecting that defaulted debt.
The good news is that you can do this yourself and the rewards far outweigh the pain of the process. It is about learning the process and the rules of the game. For a complete guide, go to www.deceptivemoney.com.