Top Debt Consolidation Traps to Avoid

Do you sometimes feel as if you’re drowning under a sea of bills and late payment notices? Are collection agencies becoming your most frequented contacts? If so, then you may want to consider debt consolidation. With a myriad of consolidation programs and techniques, it’s never been easier to forge your way out of a mountain of debt. Unfortunately, with the rise in consolidation services comes a rise in less-than-perfect practices. Protect your financial future by avoiding these common debt consolidation traps.

Cycle of Increasing Debt

The last thing a consumer typically thinks of when they consolidate their debt is increasing this balance. While consolidating debt frees up more money each month, many consumers view this as an opportunity not to grow their savings account (or pay more on their outstanding balances), but to eventually open another line of credit since their current credit score is improved. Did you know nearly 70-percent of individuals who use a debt consolidation service end up owing more than their original debt several years down the road? One credit commentator refers to this type of financial behavior as yo-yo dieting with your credit report, and he’s correct. If you are interested in credit score visit your650score.com.

Believe They’re The Only Way

While debt consolidation services offer professional-level advice regarding this process, there are few steps these companies can make that you can’t do on your own. Think about it: why spend hundreds or thousands of dollars to consolidate your debt when this process can be accomplished by making several phone calls to your creditors or collection agencies. Of course, there are times when using a consolidation service is your ideal choice, often times these services are merely simplifying a task you can successfully accomplish yourself.

If you’re interested in reducing your monthly bill payments and consolidating your overall balances, speak directly with your creditors. You may be surprised they offer in-house consolidation services free of charge. Remember, the primary goal of any creditor or collection agency is to receive their owed monies. Avoid complicating this task when possible.

Debt Consolidation Loans – Higher Interest Rates?

The idea of a debt consolidation loan is to combine multiple outstanding balances into a single monthly payment. While this may be the ideal option for many consumers, it’s important to realize that these lowered monthly payments are often supported by higher interest rates. For example, you may be reducing your monthly payments, but it may be extending the amount of time you pay on the particular debt. Think of it as spending 7-years paying off a debt that should of taken your 4-years.

Understanding Debt Collection Federal Laws

Dealing with debt collection agencies isn’t an experience many consumers wish to encounter. Whenever you fall behind on your debt payments and your accounts rest in default, it’s important to not ignore the situation but to work diligently to eliminate this overdue balance. While debt collectors are legally entitled to contact you regarding the debt, they must follow federal regulations and laws set forth by the Fair Debt Collection Practices Act.

Initial Collection Contacts

Whenever a collection agency first contacts you, they’re required by law to follow a set of guidelines. To start, the initial contact must contain clear instructions for disputing this debt. In the realm of debt collection, these rights are referred to as mini-Miranda rights. Therefore, whenever you’re first contacted by a collection agency, make sure the following information is released:

I. The total sum of the debt. Never deal with a collection agency that uses rounded figures or estimates. They must provide you an exact debt amount within their initial contact. If you have credit card debt, visit this site for more specific information.

II. Their full business name. If a collection agency refuses to reveal their business name and contact information, immediately contact your creditor and inform them of this misstep. You should never deal with a collector who’s unable to clearly state their business and purpose.

III. Clear statements within the initial contact letter or phone call stating the time frame you have for your initial dispute. Generally, this time frame is 30-days from initial contact. If you fail to dispute the debt, the collection agency with assume this debt is accurate and can proceed with collection duties.

Right to Dispute Debt

When you’re first contacted by a collection agency, you must be informed of your total debt balance. It’s your right as a consumer to receive written verification of the debt. Make sure to inform the collection agency you wish to receive this information in the mail. By law, they must comply and send such information within 30-days of their initial contact. Until this debt is verified, all collection attempts must halt. If the creditor is unable to provide accurate information regarding the total debt balance, as well as with whom the debt belongs to, all collection attempts must stop. If the debt is not accurate, it’s your responsibility to respond in writing and provide all supporting documentations to prove the outstanding balance is incorrect.

Eliminating Contact Calls

One of the most annoying aspects of collection agencies is their multiple attempts to contact you. In previous years, these telephone contact attempts were unregulated, which resulted in literal harassment according to your650score.com. Since then, consumer advocates and federal agencies have set clear boundaries. If you wish collection agencies to stop contacting you at home or work via the telephone, then you must send them a cease communication letter. Within this letter you may inform the collection agency to only contact you via writing. This is essential to not only end harassing phone calls, but to create a traceable paper trail for your records.