Debt Control Solutions

Get those debts under control. Don't fall for debt consolidation scams; if you're in financial trouble, here's the low-down on what really works to get the help you need.

The Federal Reserve's recent report revealed that outstanding consumer credit has accelerated to a 13&3/4 percent annual rate of increase. There is approximately $551.9 billion in outstanding consumer revolving debt and $731.4 billion in non-revolving debt.

1. Get the real cost of debt. Don't be tempted by offers of "low monthly payments." We've been brainwashed to think not in terms of total cost, but in terms of easy monthly payments. The thought process goes something like this: "Well, let's see. This bill will be paid next month. That frees up $22.50. And that pay raise is another $15. And if I can just squeeze another $7.50, I can buy it... I'll do it!"

Before you sign a credit agreement, scan through the fine print to see what the annual interest rate (APR) is. If it's more than 18%, forget it! Is there an annual fee for participation in this revolving loan program, and fees for documentary stamps and personal property taxes? All those costs will add to your total debt.

2. Create a budget and start saving right away. Plan for emergencies and big purchases. Start a savings account to pay for expenses that you know you'll incur. Then you won't be tempted to add more to your debt load.

3. Get rid of high interest credit accounts. Throw out ALL department store and other retail store cards. Most are at 18%-23% or more. Pay them off as quickly as you can manage.

4. Never pay just the minimum payment. It'll take you years to payoff the debt, and cost you even more interest as the balance accumulates each month. Always send in more than the minimum payment amount, and indicate extra principle on your check for car loans, home loans, etc.

5. Should you get a Consolidation Loan? If you're already debt ridden you may be tempted to apply for a consolidation loan. A lender lends you money to payoff your bills. You payoff all your credit cards and other debt, now your payments have all been consolidated into just one monthly payment to the lender. Beware! Consolidation loans are not for everyone and can be dangerous if you aren't careful. Most people think consolidation loan means they'll pay less, but that may not be the case. A consolidation loan should only be considered if the interest rate is less than all the credit you owe. Carefully check the APR and fees before signing anything, to make sure you won't end up paying more than you're currently indebted for! Then close out all of the accounts you paid off! If you continue to charge on them, you are simply accumulating more debt, not eliminating it.

6. What about a Consolidation Plan or Bill Paying Service? These companies simply restructure your debt instead of adding to it with a consolidation loan. The distinction is subtle, but consolidation plans are not loans, they do not lend you any money, you are not taking on any new debt; you just send the monthly payment to them and they pay all your creditors. With a consolidation plan, the company works as a liaison between you and your creditors, and negotiates with them to reduce or eliminate your interest and late fees, and they are usually successful at getting all the credit cards to drop the interest to 0. This allows the debt to be paid off much sooner, since you are only paying off principal and no interest. Once you enroll in the program, your creditors are forbidden to contact you. They can only contact your debt manager. You send the bill paying company one monthly payment, and they in turn pay off all your creditors a little bit at a time. Usually when the smallest creditor is paid off, more cash is available to be applied to the remaining creditors, paying off those balances even more rapidly. Some companies are non-profit and others make a profit by investing your monthly payments for themselves. Both types are legitimate.

7. Don't borrow more money than the equity in your home! The shady lenders keep sending you offers in the mail: "We'll lend you up to 125% of the value of your home!" Wow, you just struck oil! This is very dangerous oil however, because if you default on the loan, not only do you lose your house, but you still owe the other 25%.

8. Don't be afraid to seek professional help from non-profit organizations. It's not a sign of defeat, it's a sign that you're taking control again and you need help. When you bring your car into a mechanic you're not admitting defeat to anything, you're just going to an expert in the field who knows how to solve your problem. If you have credit problems you need a certified professional in the field of personal finance and credit to solve your problems.

Some organizations which may be of assistance:

1. Debtors Anonymous

General Service Office

PO Box 920888

Needham, MA 02492-0009

phone at 781-453-2743

2. Consumer Credit Counseling Services

National Foundation for Consumer Credit (NFCC)

Local organizations are listed in the yellow pages under debt or financial counselling

Or call 1-800-682-9832.

3. Credit Counseling Centers of America

888 South Greenville Avenue, Suite 101

Richardson, TX 75081

4. Debt Counselors of America (DCA)

Phone: 1-800-680-3328

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