Debt Consolidation

High Interest Rates

    If you have credit cards at 19% interest rates, there is usually no point in consolidating with a 30% interest loan, but desperate people do it all the time, because they want one monthly payment. Unfortunately the price you pay for a high interest loan can be many more years worth of payments, which is of no value to you.

   The most common debt consolidation loan scam is high interest rates. If you have less than perfect credit, you will pay a higher interest rate than someone with perfect credit as a way of compensating the lender for their additional risk.Debt consolidation loans are a great way to potentially reduce the interest you pay and combine all of your debts into one monthly payment, but do your own research and beware of the scams to make sure you, not just the lender or consolidator, benefit from your debt consolidation loan.However, that does not mean you should agree to a loan at excessive interest rates.

Converting Unsecured to Secured Debt

  The scam here is that a lender convinces you to convert unsecured debt to secured debt without your knowledge. Secured debt, such as a home mortgage, will generally carry a lower interest rate than unsecured debt, such as a credit card, because the lender is protected; they can seize your house if you don’t pay, so they are willing to charge a lower rate of interest. However, that advantage to the lender is a disadvantage to the borrower: if you don’t make your payments, they will seize your house.This is often done by having the debtor sign paperwork that has not been fully explained. One of the papers is a lien document, and later the debtor realizes they have a lien on their house.

The Money Up Front Scam

   You pay the money, and then either you either never hear from the debt consolidation loan company again, or they tell you that there was a problem with your application, such as you forgot to tell them about one of your debts, so they can’t give you the loan, but they keep your application fee.

   Avoiding this scam is simple. Never pay an upfront fee to apply for a loan. Many mortgage brokers and debt consolidators charge a fee, but they only get paid if they get you the loan, so there is never any need for them to be paid anything up front.In this scam, you are promised a debt consolidation loan, despite bad credit or a previous bankruptcy. However, there is an “administration fee” or “processing fee” or “application fee” that you are require to pay up front, which can be as much as three times your monthly loan payment, or even more.