Before you think of debt consolidation take a stand and try avoiding debt and look at other options that may help you turn your finances around. It’s vital to be aware of alternative actions you can take to avoid financial problems and steer clear of debt consolidation.

Why? Debt consolidation looks tempting but due to the high interest rate, you’ll be paying back a lot more than you think. And all the clauses and stipulations in a debt consolidation loan package are not advantageous to the consumer and you could end up with nothing.

If you’re experiencing financial woes, try avoiding the following debt traps which will ultimately lead you to the downfall of a debt consolidation loan:

• Don’t ignore your most important debts. For reasons that are obvious like utility shut-offs, evictions and repossessions, it’s dangerous to ignore your secured debts and certain types of unsecured debts. When you can’t pay everything, remember what’s important in your life…shelter, warmth, food always comes first.
• Don’t continue to use credit. Regardless of whether you are experiencing a temporary cash shortfall or you’re having more serious and long-term money troubles, avoid using credit until you say goodbye to your financial woes.
• Never make a promise to any creditors that you can’t keep. If you are feeling overwhelmed from a creditor about past-due debt or you feel guilty about being unable to pay what you owe, try and work out favorable payment arrangements, but never say you’ll pay any amount that you know you cannot fulfill. When you don’t pay what was agreed to, the creditor will ultimately begin more aggressive payment options.
• Do not obtain a risky loan. Some finance companies, for-profit credit counseling agencies, and other types of fix-it firms are in the business solely for setting you up with some form of risky loan. They’ll promise and promote loans that sound good on the surface but usually come with very high interest rates and require you to use something as collateral. Often the contract you sign is vague and confusing and you wind up in a debt trap.
• Do not sign up with a disreputable credit counseling agency. Now-a-days you’re able to repair your own credit. It’s easy to become educated and help repair your own situation. Why pay a for-profit or non-profit agency that benefit from you financial problems?

Today’s economy certainly has not made it easy for avoiding debt traps and many are signing up for debt consolidation loans. Many of us panic and are not sure just how to handle a sticky situation.

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A debt consolidation loan will rarely reduce the amount of money you owe. There will be new loans costs added to your balance. Your interest will also go up because you will be taking much longer to pay off the new loan. Consolidation borrowing almost always adds to your debt. In other words, you can’t borrow your way out of debt. In other words, you can’t borrow your way out of debt.

Let’s imagine your current bills total $10,000 and it will take five years to pay off a consolidation loan as a payment of $250 per month. With this loan structure, your new debt, with interest, equals $15,900.

The act of debt consolidation usually results in a somewhat lower monthly payment, but this payment must be made for a much longer period of time. For example, you could also consolidate that same $10,000 debt so that your payments would drop to half the $250 that we previously said. This would make your new payment only $132.50 per month.

Sounds great, doesn’t it?  Think about it, though. The term of the lower monthly payment will now be 12 years instead of five years. So, your true total debt will go up over $19,000.

Consolidation by a bank or finance company usually will not reduce your total cost in terms of time served to pay off your debt. These institutions almost always charge a higher interest rate because your risk of default or bankruptcy has increased since you made the original loans.

Debt consolidation is just another way of enslaving you in further debt. The lender is the one who benefits, not the borrower. Debt consolidation is done for three basic reasons:

1. It discourages bankruptcies
2. It gives the lender a chance to adjust the interest rate upward.
3. The lender has the opportunity to add collateral to the loan.

The only exception to debt consolidation is if you can get the interest on your total bill reduced. The debt would be paid off quicker because more of each payment will be going toward the principal and paying off the balance of your loan.

Again, you cannot borrow your way out of debt; you can only borrow your way deeper into debt.

Owning a home gives you plenty of financial options. You can refinance your home mortgage to lower your interest rate or use it to consolidate your debt.

If you own a home, this means you have a very powerful financing solution at your fingertips. A home means you have some equity and hence, through a second mortgage or a house mortgage refinancing solution, you can borrow from yourself to cover your financial needs. Thus, this will allow you to alleviate your current financial situation.  Not sure of the possibilities?  Here are some things you can use a second mortgage or a home mortgage refinancing solution for:

1) You can utilize home mortgage refinancing to lower your mortgage rate. This is a great way to reduce your mortgage and overall payments. You may need to still scale back some but you can save overall. Especially during the current recession, you can get good financing rates

2) Use a second mortgage or a home mortgage refinancing as means of a debt consolidation loan. This is a great method to combine all your other debts and alleviate stress on you. If you have burdened with maxed-out credit cards, a ton of unpaid bills, trouble covering your auto loan payments, then this may be wise decision for you to get a second mortgage on your house and use it as a debt consolidation loan. With this solution, you can pay off all your debts at one time and you will also be able to pay back your loan back in the long term. And, the amount of interest will be considerably less.

3) Thinking of starting a home based business? You can use a Home Mortgage Refinancing loan to create that needed capital for your new home based business. Or, perhaps you need an influx of cash for your existing business.

4) Need money for college tuition?  Use this technique to get money for your children’s college fund or pay off your child’s college tuition fees.

As you see, a home mortgage refinancing solution may be advantageous for a variety of purposes. Take the time to review various financing options.  There are plenty of rates and places to refinance, just do your research.

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Hot tips on refinancing and credit improvement and repair strategies revealed in the Credit Secrets Bible.

Before taking any action on how you will tackle your bad credit problem, it is a good thing to consider the various options available to you.

Your situation is unique. Credit repair does not work for all. Sorry, but this is just the truth. Whoever tells you otherwise would be lying. Here are some options to consider:

1. Do nothing: Yes, this could be the best option for someone deeply in debt, who has an already strained budget, and just does not want to take the bankruptcy route. I did this for years, and though collectors were driving me nuts, I had to just brave it out until my situation improved. I actually had to stop picking up phone calls from unfamiliar numbers, which caused me to also lose some opportunities that might have helped.

Caveat: This option is for someone who is “judgment proof”. This is someone who is a liability even to sue as the chance of collecting is next to zero.

2. Find ways to earn extra cash. Yes, there are ways to earn some extra cash for those who look around and are not scared to do some work, or don’t consider some things as beneath them. For instance, women who have a room to spare in their homes can run a child daycare. Or they can take in overnight, children of parents who have to work at night. If you’re good with computers you can teach, for a fee, non-computer-literate people learn how to use a computer, or offer computer maintenance services. The possibilities are endless.

3. Sell an asset: My sister had to sell off her beloved shiny almost new SUV and buy a used Sedan. She almost cried (I think she did in private), but the option was best for her under the circumstances. Today, she is glad she did. If she had not, she would still be deeply in debt, and with an old SUV. Weigh your options. Selling off your home may be hard to take, but it is better than to get cash back (if you’re lucky) from foreclosure.

4. Home Equity: For older home owners, you can use your home equity to pay off some (or all) of your most crippling debts. Again, weigh your options carefully as you don’t want to lose your home (and perhaps still be in debt).

5. Debt Consolidation: A professional debt consolidator could help you by negotiating with your creditors on your behalf, for more comfortable. A good debt consolidator will also help you come up with a budget that allows a bearable or comfortable lifestyle.

Note: Debt consolidation is considered more or less like bankruptcy by some creditors. The difference is that it does not wreak havoc on your credit for ten years. Also, you will be required to close your revolving accounts – which will hurt your credit initially – as well as make a pledge not to establish new lines of credit until your debts are paid off.

Warning: Some debt consolidation companies are scam.

6. Negotiate: You can negotiate with your creditors and/or debt collectors for lower monthly payments or a lower lump sum. Some creditors will be happy to be receiving something than nothing at all. This is perhaps the best option as you can also negotiate non-reporting or removal of adverse information as part of the bargain. Note that lower monthly payments might not be indefinite. Most creditors, especially of open/active accounts, will insist on a specific time span, after which the payments will return to normal.

Also be aware that if any part of your debt is written off, it may be considered income and therefore taxable.

This option is best for those whose credit situation is not already in the intensive care unit, so to speak.

7. Chapter 7 Bankruptcy: Filing for bankruptcy is an option, however a hard one to take. A chapter 7 bankruptcy allows you to wipe out your debt and start over. It is also the most devastating to your credit file. This requires you to give up most your assets.

Since October 2005, it is much more difficult (almost impossible) to file for a Chapter 7 Bankruptcy as congress passed what I consider draconian and anti-consumer laws, in the name of The Bankruptcy Abuse Prevention Act. More on this in a future post.

8. Chapter 13 Bankruptcy: This is also referred to as the wage-earners bankruptcy. It allows you to pay back what you can over time (usually 3 to 5 years), while you get to keep most or your assets.

Discover insider techniques and strategies for repairing your credit. Check out: Credit Repair Bible today.

You’ve seen the ads on TV, print media, and online. They make fantastic promises, such as wipe out your debt and make your credit report as clean as a bleached bone. How true (or realistic) are they?

Well, just read the following news story that was featured recenttly on NBC10 news:

PHILADELPHIA — A local woman said a Philadelphia company promised to resurrect her bad credit, but instead left her buried in even more debt.

So, the NBC 10 Investigators contacted the company that promises a line of credit to anyone, no matter what their circumstances may be.

“But how do you approve a dead man?” asked NBC 10 investigative reporter Harry Hairston.

Read full story

Avoid credit repair scams! Most experts agree that the best repair is self repair. Discover tricks and strategies: Get a free self credit repair special report now.

Credit repair, remove negative items fast… you’ve probably heard it all. But can it be done? Can anyone remove negative items from your credit report? Well, read on to find out.

First consider this. There are three major credit reporting agencies in the US. This makes the removal process three times as hard. Removing bad (referred to as adverse) information from one bureaus files means you might still have two to go. I use the word “might” here because some creditors do not report to all the three bureaus.

Secondly, even if you somehow succeeded in removing negative items from one credit bureau’s report, creditors can still re-report them and you’re back to square one.

And just how can they remove the bad items? Of course, breaking into the bureaus computers is illegal and I have a hunch that it is a felony that could send you to prison for a very long time.

To cut a long story short, no one can remove negative information from your credit file. But don’t give up, it can be done.

You can fix bad credit, but it doesn’t take a day. And it’s not a walk in the park either. It takes time and effort. You see, while no one can actually remove bad credit information from your file, there are tips and tricks that you can use and have it removed.

You see, there are two parties (or three if count collectors), that can legally remove (or add) information from your credit file; creditors (also known as furnishers) and the bureaus themselves. By using the Fair Credit Reporting Act (FCRA) to your favor, you can actually clean your file of bad or adverse information.

The same tricks that credit repair clinics charge you hefty (and sometimes recurring) fees for, you can apply yourself with equal or better results. Why pay when you can do it yourself?

Indeed, most credit experts agree that the best repair is self credit repair. And it costs you nothing but your own time and effort.

One trick that credit repair clinic will try to sell you on is a debt settlement plan. This is a completely unethical approach to debt repayment. It involves letting your debt get so old that the creditor and/or collector often lose hope of ever getting paid, therefore willing to accept a fraction of the original debt.

There are several drawbacks to this. One is that it can cause serious damage to your credit for years to come. Though the clinic will promise to negotiate for removal of the bad information, this is not a guarantee. And you will suffer from having bad credit meanwhile.

Secondly, this technique could potentially cause tax problems for you, as the amount of debt forgiven is automatically considered taxable income. And those guys at IRS just don’t go away.

To repeat, the best credit repair is self credit repair. There are ways to negotiate with your creditors and collectors to remove negative items from your file, as well as many other tips and tricks which unfortunately are beyond the scope of this article. Keep watching this blog.

Discover tips and tricks to repair your credit and remove negative items fast. Check out: Credit Repair Bible

Their ads are enticing. Credit card debt consolidators, that is. They make grandiose promises. Some promises include cutting your debt by up to 60 per cent and making you debt-free today. Are they for real? Indeed, is it smart to consolidate your debt? The answers may surprise you.

The term “credit counseling” is often misused. How?

You see, that term (credit counseling) gets mixed up with debt settlement, debt consolidation, debt management, debt clinics and more, and gets “lost in translation” so to say. What’s worse, some of the so-called credit counseling agencies, including a few “nonprofit” are nothing but scam operations.

But first to answer the question: is it smart to consolidate your debt? Yes and no. What do I mean?

Creditors are often more than happy to work with reputable organizations that specialize in helping debtors who are serious to repay their debts. These include credit counseling and debt consolidation agencies.

A good credit counseling agency can among other things help you in, 1) negotiating for a lower interest rate on your behalf, 2) assisting you make a realistic budget that you are likely to stick with 3) finding leaking points in your finances, and 4) coming up with a workable repayment plan. These are all good things.

Depending on your particular situation, a credit counselor might also recommend or offer you the option to consolidate your debts. This means that you’ll be making one monthly payment, often at a lower interest rate.

The objective of consolidating debt is to pay off all your debt in terms acceptable to your creditors but that also leave with some money for your living expenses. After agreeing to a certain monthly figure, you are required to remit the funds to the consolidator, who then distributes it to the various creditors.

A debt consolidation company often can also negotiate waiver of late and over-limit fees, therefore reducing the debt burden.

And, once you have been set up with a debt management plan (another term for debt consolidation), creditors and debt collectors should stop calling you and instead call the agency. You can now breathe easier, with all those collectors off your back.

But there are also downsides and even dark sides of debt consolidation. For one, debt consolidators do charge a fee, often exorbitant if you come across the wrong type.

Secondly, cases exist where a debtor paid a consolidation company, but the company never disbursed the money, using it for their own purposes. The hapless consumer realized, often too late, that her/his bad situation that was supposed to be getting better only got worse. And she/he now had an even bigger dent in her/his credit rating.

Some debt consolidators charge hefty fees upfront. Some of them will require an amount equal to your first payment in order to set you up, asking you to negotiate for a repayment delay with your creditors. If you come across this type, run!

While on a debt management program, you will be required to close all your credit card accounts, which will hurt your credit score. Also, you will not be allowed to open new credit accounts, therefore you won’t start rebuilding your credit history. Credit experts recommend that you start rebuilding a good credit history right away.

Debt consolidation is a double-edged sword. Use it if you must, especially if it’s the only way to avoid bankruptcy (which can be devastating to your credit for 7 to 10 years). But first do explore other options.

The promise of getting out of debt easily and quickly is indeed enticing. There are numerous debt consolidation professionals, companies and “non-profit” organizations that promise to consolidate your credit card debts into one easy monthly payment, reduce your interest rates, and get you out of debt. But are they worth their salt?

Just what is “Credit card debt consolidation”? Why is it such an important topic?

Dictionary.com defines the word “consolidate” as, “to bring together (separate parts) into a single or unified whole; unite; combine.

“Credit card debt consolidation” refers to:

1) Consolidation of the debt on various credit cards into a single credit card (or a couple of credit cards) at a lower interest rate. This can also be referred to as balance transfer.

2) Borrowing of money by use of collateral such as a mortgage or home equity loan and using it to pay off your credit cards, with or without enlisting the service of a professional, organization or company. In this case, you’re left with just one payment to make - the money you borrowed to pay off your debts.

3) Enlisting the help of an intermidiary such as credit counselor, agency, organization or company to consolidate your credit card debts into one monthly payment and negotiate lower interest rate(s) on your behalf.

Credit card debt consolidation seems like a good way of tackling the problem of credit card debt. But there are upsides and downsides as well as the good, the bad and the downright ugly. This is subject of a future post.

Keep watching this blog.