Myths and truths about debt consolidation - April 30, 2008
Debt counseling and debt consolidation services are offered by various debt servicing agencies. You should be aware of the fact that these agencies are only a third person getting control of your already bad financial situation.
The may be helping you out but the are never sacrifing their own interests…
If you compare the prices of these debt consolidation services and regular debt related services or products you will find out that such agencies are generally priced higher. Since you are in trouble and not able to manage your finances on your own you are under a compulsion to adopt a reputed agency that might be able to help you to get out of debt.
But you should be sure that you understand the term, charges associated and the interest rate you have to pay along with the loan. Even if you are lowering the interest rate you might not be able to manage your debts and only postpone the day of reckoning. A balloon payment for example could mean that you have to take another loan and you will stay in the debt trap for an even longer time.
It may sound very appealing to have all your debts incorporated in a single installment with the offered loan package. But never forget to consider the financial compatibility and your ability to repay that amount. The interest rates are usually lower than those of credit cards but on the other side the amounts you have to pay each month are higher than regular mortgage rates.
Make sure that the debt management agency will deal with all your debts. Many are tending to exclude liabilities on non dischargeable child support, unpaid taxes or car loans. Thus they neglect the debts that are vital and your money is disbursed to the lenders whose claims could lead to your personal bankruptcy.
Home equity can save your taxes but be sure that if your debts are forgiven or redue those are treated as taxable by IRS. If 50% of your debt is settled then this part will be reported to the IRS as your income. Eventually you might end up paying more taxes and saving no money.
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