| Dangers of debt consolidation | |
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| And, as with any product, shop
around. The bank down the street may offer an attractive loan rate, but a check
of your local credit union could turn up better terms, says Deborah McNaughton,
author of "The Get Out of Debt Kit."
"Credit unions also tend to be more lenient
than the banks," adds McNaughton. Managing,
not adding, debt
Viale is a much bigger fan of debt management, which
isn't a surprise since he heads up a debt management firm. But McNaughton and
other experts also point to credit
counseling instead of shifting debt as the way to go. They
favor debt management because it costs less and is quicker than a debt-consolidation
loan. Viale says someone owing $20,000 would end up paying $6,000 to $8,000 in
interest and fees and be debt free in four to six years by using a credit counselor.
If that person took out a 15-year home equity loan at 10 percent (because his
credit wasn't good enough to get him a lower rate), Bankrate's loan
calculator shows he'd end up paying $18,686 in interest on top of the twenty
grand he borrowed. But if you just can't get a handle on your
bills by yourself, you should explore credit counseling. Getting professional
help in managing your debt can help you change your credit behavior. People that
have taken on too much debt tend to go into denial; they'd rather not know how
much debt they owe. A professional debt manager will make you face up to your
obligations. Credit counseling agencies also force you to stop
racking up debt. In exchange for consolidating your debt and working with your
creditors to reduce your payments, credit counselors require you to give up your
credit cards. Credit counseling, however, is not without its
costs. One downside is that your reduced payment plan will
probably show up as a mark against you on your credit report. Even though your
creditor agreed to the reduced payment, you technically did not pay your account
as called for in your original credit agreement. An even more
costly potential pitfall is the disreputable debt counselor. As this
Bankrate story points out, some credit counseling and debt-consolidation companies
are only interested in making a quick buck on debt-ridden consumers. Some firms
offer shoddy service at sky-high fees. Others are out-and-out scams. To
find a reputable firm, verify certifications or third-party registrations. Check
with the Association of Independent Consumer Credit Counseling Agencies or the
National Foundation of Credit Counseling to see if the service you're considering
is a member of either group. Also ask the service for references and then confirm
them. Make sure that the debt management or credit counseling
firm answers all your questions and that you have a firm understanding of how
the process will work and what it will cost. If the company won't give you straight
answers or you don't understand what's going on, don't sign up with that company. Jenny
C. McCune is a contributing editor based in Montana. | 
