Debt Consolidation - Myths And Truths
Debt counseling and debt consolidation services offered by various debt servicing agencies are actually a third party getting control over of your bad financial situation and taking many important financial decision on your part, may be to help you out but never sacrificing their own interests.
You will find such agencies have products and services that are generally priced higher than regular debt related products and services. Since you are in trouble and cannot manage your finances well you are under a compulsion to adopt a reputed agency that can help you get out of your debt burdens.
It is imperative to understand the charges associated, term and interest rate that you have to pay with the loan. Even lowering the interest rate might not make your debts manageable it might only postpone the day of reckoning. If you are required to make a balloon payment then this might be an enticement to another loan that makes sure that you never get out of the debt trap.
While the loan package you are offered to incorporate all of your debts into a single installment may sound very appealing, you should at the same time consider the financial compatibility and your affordability to repay that amount. These loans have a lower interest rate than credit card rates, but the rates are generally higher than the regular mortgage rates.
Your state gives an exemption and protects your home by providing you with a home equity. If you pledge this equity to your lender then the exemption fails to protect the pledged portion of your property value.
Non payment of unsecured debts could lead to legal complications as your creditor might sue you for his loss. Non payment of your home equity loan would result to confiscation of your property in foreclosure.
Make sure that a debt management agency deals with all your debts. Many agencies tend to exclude your liabilities on non dischargeable child support, car loans or unpaid taxes. Thus they neglect the debts that are vital and your money is disbursed to the lenders whose claims could lead to bankruptcy.
Many of us have the idea that loans like home equity saves your taxes. If your debts are forgiven or reduced then those are treated as taxable by IRS. So if 50% of your debt is settled then this part is reported to the IRS as your income. So eventually you pay more taxes and save no money.
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