Avoiding debt relief scams

By Michele Lerner
Mortgage Credit Problems Columnist

Debt consolidation loans allow consumers to wrap all their credit card debt into one loan with one monthly payment. This method of debt relief can take the form of a home equity loan, using your home as collateral, or a personal loan.

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If you have enough equity in your home, securing a home equity loan for debt payoff may be a good strategy to lower your debt payments, particularly if your credit card debt or other consumer debt carries high interest rates. Fill out the form on this page to see if a debt consolidation loan can help get you back on your feet financially.

If you're considering debt consolidation, you must refrain from taking on more debt after you consolidate your credit card debt. It can be tempting to begin charging on your cards again when you've used your home equity to pay off your loans and you see plenty of available credit on the cards. However, doing so could mean you're no longer able to afford the payments on your debt consolidation loan. And if that loan is tied to your home, you could end up in foreclosure.

In addition to making sure you are disciplined enough to get out of debt permanently, you need to be aware of the possibility of a debt relief scam.

Debt relief scams

The U.S. Federal Trade Commission (FTC) offers suggestions to prevent getting burned by a debt relief scam, including staying away from companies that:

  • Require expensive monthly service fees and a percentage of your savings on your debt payments.
  • Suggest you stop making payments or responding to letters or phone calls from creditors.
  • Guarantee to pay off all debts for "pennies on the dollar."
  • Promise that you cannot be sued by your creditors.
  • Promise to remove negative information from your credit report, even if that information is accurate.

While debt consolidation loans can work, make sure you are not ending up paying more than you should for debt relief. It is important to realize that there are no quick fixes for debt problems. It takes hard work to get out of debt no matter what method you use. A debt consolidation loan can make it easier because you have one payment to make. Be diligent about repaying that loan and vigilant to keep your other debt low. Pay all your bills on time to improve your credit score.

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