Debt Settlement Scams

Many people consolidate their debts by using a debt consolidation loan. Often, the amount of interest you pay is on your loan is a lot less than the cumulative interest you pay each month on all your debts and more often than not the amount you pay each month to your loan is less than the amount you pay toward all your debts. In theory therefore, debt consolidation loans are a great way of clearing debts. However, as I will explain in this post, debt consolidation loans are also a massive cause of peoples debt problems becoming even greater.

In my time working in insolvency one of my jobs was working as an IVA drafter. As part of any IVA proposal you must include a history of how the debtor has come to be in the financial situation they have found themselves in. The vast majority of IVA cases entailed a person pr persons spending money on credit cards taking out a consolidation loan, spending on the cards again and then taking out another debt consolidation loan and becoming trapped in a cycle of debt. The most interesting aspect of this was that for those people who had been forced each consolidation loan to borrow at a higher rate of interest due to there credit rating being harmed by defaults and missed payments caused by the ever increasing amounts of outgoing expenditure on unsecured debts.

Many people would take up to four consolidation loans and it was the these third and fourth generation consolidation loans that are the cause of so many peoples financial woes. Take for example a company like Welcome finance. Welcome finance will lend to anybody no matter what there financial situation (they even advertise this). This policy on lending to anyone comes at a price. Interest rates. I have seen credit agreements from Welcome where the level of APR has been as high as 49%. On secured loans people can charged almost three times what the borrow in interest. Although scandalous, the likes of Welcome finance flourish on peoples desperation to pay off their debts which in turn simply prolongs the agony of those suffering with debt problems.

Debt consolidation loans are best used in the first generation when, if you have a good credit rating you will be able to a consolidation loan that is at a reasonable rate of interest. The key however, is to not spend again which for many is easier said than done. I would recommend therefore, only keeping one card for emergencies. So many people simply wait only a matter of weeks to begin spending on cards again and the cycle of debt continues.

Due to the credit crunch debt consolidation loans have become harder to get hold off. Many lenders have changed their policies in regards to how they lend. Therefore, those who have missed payments (not defaulted) may even struggle to find a lender willing to provide them with a debt consolidation loan. If you can find a lender don?t simply take the loan because it is being offered. How much are you going to pay in interest? Is it more or less what you are paying at the moment? How long is the loan going to take to pay back? Sit down and work it out. In short don?t make rash decisions. Take you time and try get as many quotes as possible.

www.ausdebtsolutions.net

www.ausdebtadvice.net

Find practical ideas about what is forex trading all about – welcome to your individual knowledge pack.