When Norm Bour was 24, credit
was so hard to come by he couldn't get a gas station credit card without begging.
Today, a majority of the home
equity lines he approves as owner of Priority Plus Lending will be used to pay
off Americans' credit card debts. Nor is his route the only one to spring up in
a capitalistic society: Where there's a need, there's a buck to be made, even
among the broke. So you can bet that where competition
rules, advertising spin appears. If you are considering debt consolidation options,
avoid these misrepresentations: 1.
Credit counseling, debt management programs -- it's all the same.
Credit
counseling involves helping consumers develop a budget and the discipline to make
steady payments to clear their debt loads. In a word, it's education. "Most
of these individuals make a decent living, but at the end of the week don't have
enough money and don't understand why," says Joel Greenberg, president of
New Jersey-based Novadebt. Debt management programs -- or
DMPs as insiders like to shorten it -- are one tool in the credit counselors'
kit. Basically, the DMP plays policeman, taking your monthly lump sum payment
and distributing it to your creditors until the accounts stand at zero. They then
close those accounts. According to Greenberg, less than 35 percent of the people
who call consumer credit counseling agencies truly can benefit from a DMP. 2.
Credit counselors can cut your monthly payments in half.
No such luck.
This is a numbers fudging claim that holds true only in the narrowest of circumstances.
For instance, if you miss two $200 payments on a $10,000 balance, the third month's
bill will make it $600 that you owe. DMP personnel re-age that bill, knocking
your payment amount back to $200. You haven't escaped anything -- the missing
money was merely tacked back into the total owed. And most
folks who walk through his doors haven't missed payments, says Greenberg. These
harried souls will see a bit of relief from an interest reduction, but by no means
will they magically owe only half their bills. 3.
Some companies offer lower interest rates than others.
It drives Richard
Musci, chief lending products officer at Schwab Bank, crazy to see teaser ads
for low interest rates on home equity lines. Any quotes that fall within prime
minus 75 basis points to prime plus 2 percent are reserved for those who make
the A credit list. Those lower down the credit spectrum can expect to strike deals
for prime plus 4 percent or 5 percent, not to mention a point or two in fees.
"They're using it to get people in and take them
so far down the road that by the time they sign the loan papers, they're committed.
They don't want to start all over again," he says. It also serves a second
devious purpose: lower advertised rates push these companies to the top of the
search engine lists.
| 
