If you are in debt up to your eyeballs, the fantasy of debt consolidation sounds wonderful and can suck you right in. It would be great if someone had the power to shrink your debt into one little package and shrivel that debt into only one hundred dollars or so.

When someone has outstanding debt, the convenience of having everything all rolled into a single package sounds like the perfect idea. With further promises of a lower interest rate and only one payment to make monthly your dream has come true.

Before you opt for this option, it is important to know the serious risks that accompany these consolidation loans. Often you are only informed of the shaded highlights and the tip of this iceberg is hiding something that you first need to be aware of with both eyes wide opened.

The Worst Consolidation Moves

The biggest myth about debt consolidation loans is that they are easy to get. Now if you really need a loan, it’s because you’re in trouble financially and your credit history most likely isn’t the greatest.

And that’s the problem. The consolidator may entice you with promises of an easy-does-it loan and end up charging you higher interest rates than you are now paying. Yes your monthly payment may be lower, but you’ll end up paying a lot more due to the extended time of the loan and the higher fees.

Another problem with these types of loan companies is how they negotiate with your money to help you get out of debt, yet make a living for them doing so. Many debt consolidators build in a fee as part of the monthly payment you make to them.

That fee is usually about 10 percent of the payment. They pass along your payment to the creditor and get back a 10 percent to 15 percent slice that the relieved client (YOU) is only too happy to rebate to the consolidator for all of their assistance.

Another problem is those who are in deep debt have the impression that a single loan looks better on their credit report. Consolidation will most likely initially have a negative effect on your rating. This is because a key portion of your score is the length of time you have had with your opened accounts.

An enormous danger with using a consolidation loan is if an unexpected emergency arises. An unexpected loss of a job or other situation that causes a sudden loss of income will make that loan an even heavier burden since your home then will be on the line.

First, is it worth paying someone else to do what you can do on your own? There are things you can do such as call and negotiate lower interest rates, stretch out your repayment schedule and pay off the highest-interest debts first.

National Foundation for Credit Counseling has branches throughout the country; they are a non-profit community organization that provides free and confidential debt management service to anyone who needs it, even over the telephone.

I believe it is a good alternative to try before heading off to one of the many consolidation firms sprouting up all over the country.

When you co-sign a loan, this means that you are telling the lender that you are just as responsible as the person who is getting the loan. It also means that if they can not make a payment, the lender will look to you to make that payment. It also means that if the loan is not entirely paid back, the lenders will expect you to pay back all the money. This can be very overwhelming and very unexpected, especially if you are not getting any thing back by paying the money for your friend or family member.

Generally lenders only require a co-signer when a person has little or bad credit. If your friend has had trouble paying back loans in the past, do you think they will have trouble paying it back now? Do you really trust this friend to be able to pay you the money if you end up making payments for them? Make sure that you really know all the details of their credit history before volunteering to cosign for them.

If a person does not pay back their loan, the lenders will generally expect you to start paying back the loan before they take any legal action on your friend. This may also effect your credit score if your friend does not pay back a loan that you have co-signed. Having your name on the account shows the lenders that you have good credit but as soon as it is defaulted on, your credit score can change drastically.

There are a few things you can do to try to prevent a disaster if you do decide to co-sign a loan for someone. Make sure it is someone you really know well and have good communication with. Ask them or the creditor to please contact you when a payment is missed so that you can be aware of it. Take note of the amount of the monthly payments so that you can see if you would be able to afford it if your friend does end up missing a payment. Get copies of all the important documents and read them through thoroughly. You are just as responsible for the loan as your friend is.

Also, make sure you get a copy of the co-signers notice. It is a legal document outlining your role in the loan. It can help you by knowing a lot of the details before signing your name on anything. Co-signing a loan can be risking, but as long as you know the person well and know all the background, you should be fine. Just remember that co-signing a loan is a serious deal and should not be taken lightly.

There are basically two options you can choose from. You can continue to make the monthly payments on that line of credit and not spending on that line anymore, first because it is overdrawn, and second because you do not need any more debt. The second option you could choose is to settle your debt for a smaller amount with your creditor, allowing them to get some sort of payment in the end, and relieving you of your debt obligations. So which one should you choose that would best take into account the potential damage to your credit score?

It really all depends on you. You can best determine what will be your best escape from the mess you’re in based on your income, how well you will be able to continue to pay monthly bills, how much money you owe altogether, and which option will do the most damage to your credit score. But knowing a little bit about the situation can help you to make your decision.

How Much?

The amount of money that you owe is one of the factors that greatly influence your decision. If you owe a lot of money, it may be difficult to find a price at which the debt settlers will be willing to accept without you having to pay beyond your ability. However, because your account is overdrawn, the interest will increase substantially, leaving you with a huge amount of principle to be paid alongside a huge amount of interest.

Keep Struggling

If you chose to keep making the monthly payments, your habit of making late payments probably would not change much because your balance has only gotten bigger and the interest has shot up, only making it more difficult to meet the minimum monthly requirement. You could continue to pay your bills, however late or partial they may be, suffering the consequences of the blows to your credit due to irresponsibility of payments. But is that really better than settling?

Settlement

If you were to choose to settle your debt for a reduced amount, you may risk having your credit suffer. However, if your credit card company settles for less than the full amount as full payment, this is the best option for you, if you can pay off your debt in that reduced amount. Make sure, though, that your creditor has in writing that they will report to the credit bureaus that you have “paid in full”, otherwise your credit score will suffer anyway because you only paid the partial amount.

When you become divorced and you ex-wife or ex-husband owes money you should do a few things. First you should try to make all the necessary attempts to have the lion share of funds classified as alimony or child support. These debts cannot be discharged in a bankruptcy. For instance the more possessions, like your cars, house, etc. that carry debt that you personally include in your property statement agreement the greater the risk that you ex-wife or ex-husband may be able to convince the bankruptcy court that your debts should be included in the bankruptcy.

Although possessions or items in a court approved property settlement are usually understood to be non-dischargeable, but the reality is there is no particular rule or law about the items that are related to your debt that may or may not be declared in a bankruptcy. The only way to have the debts not charged to you is to show that you have no ability to pay the obligation and also to be able to take care of yourself or your children. Another good way is to show that taking care of yourself and your children is more important then what might happen to your ex-wife or ex-husband.

A few ways to find out if you are liable for debt is if you were living with a person without being married and you put your name on the debts the creditor will hold you responsible. Lots of people while they are married intertwine their debts, so each one of them could pay the debt. Now of course if the couple is not able to pay the creditors the creditor will chase both of them.

To protect yourself once your divorce is final is to get rid of or cancel all credit cards and joint accounts and get your name off all bank accounts that you had with your ex-wife or ex-husband this will make sure that you will not be responsible for any more debt after your divorce.

In many cases one of the best ways to handle debt in a divorce is before any distribution of money to the individual happens all mutual debt should be paid off. For example if neither one of the divorcees is going to living in the home where they lived prior to the divorce they could sell that home and then pay off credit cards loans or other debts that they have mutually. Their attorney can send out checks to their creditors once the home is sold. You can even do a settlement option with your creditors because many of them will accept a 60% settlement.

Myth: A charge-off is a cancellation of your account

A charge-off is not a cancellation of your credit account. They usually prohibit you from charging any money on your account long before they even consider a charge-off if you have failed to pay your debts. Closing your account simply removes your privilege of charging on the credit card account that you owe money on, which action does not affect your credit report nearly as much as a charge-off.

Myth: Getting a charge-off is the end of the world

When a collection account becomes a charge-off, it certainly does damage to your credit report. It is unavoidably true that if your account is charged off, you usually still have to pay the amount that you owe, plus you have a “bad debt” mark on your credit report that will affect your ability to get credit in the future for a long time. However, it is not the end of the world, because it can be repaired over time with renewed credit charging and payment habits that you can attain gradually.

What IS a charge-off?

A charge off is not when they close your credit account. It is not a bad mark on your credit report that will ruin you forever and take away your ability to get a loan or another credit card. A charge-off is what happens when you do not pay the money that you owe and the creditor is forced to zero out the debt on their financial ledgers. That means that in their books, it shows that you no longer owe them money, because they cannot afford to have a large negative balance.

You end up paying for a charge of not only by paying back the debt you owe, but by punishment to your credit report. This mark on your credit report will be what creditors will use to devastate your financial situation to basically get you back for their having to do a charge-off. However, though your credit report will be hurt because of this, it can be slowly repaired, as I said before.

When does a charge-off occur?

Usually, your collection account becomes a charge-off around six months after the time of nonpayment. This means that if you have not paid your bills for six months, you either already have gotten a charge-off or you are very close to having your account become so. Six months is the amount of time that your creditors have before they are forced to zero out the balance on your account.

Not only are collection agencies prohibited from suing you, but you are NOT prohibited from suing THEM. There are certain circumstances in which you may feel you have been wronged by a collection agency. If you feel this way, that the law has been broken by something that the collection agency has done or said to you, then you can file a formal complaint and take that collection agency to court.

The thing that collection agencies are most commonly sued for is harassment. Harassment is prohibited by the law when collection agencies are trying to reach the person who owes the money. Here are a few examples of harassment that you have the power to sue for if you are under similar circumstances.

Excessive Phone Calls

If a collection agency is calling you several times a week on behalf of the same creditor, or because of the same form of credit to which you are indebted to and have failed to pay on time, they are breaking the law. Collection agencies are not allowed to contact anyone more than three times a week to inquire about the same overdue payment. If something like this occurs, track the date and the time at which you were called each time, and then you will have proof once you make a formal complaint against them in court.

Threats

Some collection agencies threaten the people that they call to attach their wages in order to get the debt paid. This is illegal only if they are only making hollow threats and do not really intend to do so. If they really do take action to legally attach your wages to get the debt paid, then there is no valid reason for you to sue them. Make sure that you have proof that they did not fully intend to do that before you file a complaint, otherwise you will lose.

Make Sure Your Complaint is Valid

When you take a collection agency to court intending to sue them, you must make sure that the complaint you are filing against them is valid enough for you to have a strong case. If you go to court and do not have proof of harassment and a legitimate explanation of exactly what happened, with detail to back your story up, you will not be persuasive enough to win the case. It is up to you to track and monitor how you are being treated by collection agencies, and if you find fault in this treatment, use it as proof against them for their crime.

A debt collector may contact you in person, by mail, telephone, telegram, or fax. However, they cannot contact you at unreasonable times or places. Also, they cannot contact you at work if your employer disapproves or at home if you have written them and told them not to do so.

A debt collector is any person, other than the creditor, who collects debts owed to others. This also includes attorneys who collect debts as a regular source.

You can stop a debt collector from contacting you by writing a letter to his collection agency asking him to stop. The agency many only notify you if the debt collector or the creditor intends to take some specific action. Within five days after you are first contacted, the collector must send you a written notice telling you the amount you owe, the name of the creditor, and what to take if you believe you do not owe this bill.

If you have an attorney, the debt collector may not contact anyone other than your attorney. If you do not, the collector may contact other people but only to find out where you live and work.

Collectors are prohibited from contacting allowable third parties more than once. In most cases, the collector may not tell anyone other than you and your attorney the reason why he is trying to reach you.

Also, a collector may not contact you if, within 30 days after you are first contacted, you contact the collections agency stating you do not owe money. However, a collector can renew collection activities if you are sent proof of the debt, such as a copy of a bill, etc.

What Debt Collectors Are Prohibited From Doing

They may not use harassment such as: 1) Use threats of violence or harm; 2) Publish a list of consumers who refuse to pay their debts; 3) Use obscene or profane language; 4) Use the telephone to annoy anyone; 5) Not identify themselves; 6) Advertise your debt.

Collectors may not state that: 1)You will be arrested if you do not pay the debt; 2)They will seize, garnish, or sell your property or wages, if the collection agency or creditor does not do so; 3) Actions, as a lawsuit, will be taken against you, which legally may not be taken, or which they do not intend to do so.

Debt Collectors may not: 1) Give false credit information about you; 2) Use a false name; 3) Send you anything that looks like an official document when it is not.

They may not make false statements such as: 1) Falsely imply they are attorneys; 2) Falsely imply you have committed a crime; 3) Pretend they work for a credit bureau; 4) Misrepresent the amount of your debt; 5) Indicate the papers being sent to you are legal when they are not; 7) Or indicate the papers being sent to you are not legal when they are.

You have rights. But only you can assert them. Do not ignore the debt collectors or their letters. Some collectors follow the law, but you are responsible to ensure any contact with them is lawful. If they violate your rights, they sure will not sue themselves.

When dealing with collections agencies, make sure you are familiar with the Fair Debt Collection Practices Act and the Fair Credit Reporting Act. Check out the Fair Debt Collection Practices Act website. It is great and has almost everything you will ever need.

As many of you know when you default on your loan if you forget to pay your bills. You need to make sure you read over the promissory note for the loan so you are properly aware your loan conditions, responsibilities, and rights. You’ll want to be sure to avoid guaranteed online personal loans if you can help it.

These tips I am going to bring up are going to make a difference whether this is a make or break experience.

1. Review Correspondence

First of all, review and comprehend all of the papers, verbal converstaions and other communication you have between you and your lender, servicer, and/or loan holder. Respond quickly when they require your time because this can be helpful for any alterations they may have.

2. Keep The Creditor’s Number Handy

Many people move or change their name or address for whatever purpose. Just be kind to your creditors and tell them that you have made some adjustments and do so immediately. Also get a hold of them if you have questions about your statements, issues with on time payments, or also when you want to look at deferment and/or forbearance as options to help with your payments.

3. Know Deferment And Forbearance Options

Also understand that sometimes you payment problems, make sure that this is always a priority to handle for the benefit of your credit. Make sure you are knowledgeable about deferment and forbearance and you are able to exercise your options when you need them.

4. Student Loan Consolidation May Be Necessary

Another option may be for you to look at loan consolidation and how you can combine payments and lower interest rates. This can save time and definitely money short term, long term could be another issue.

5. Be On Time

The main priority is that you send your student loan payments on due dates, for the full monthly payment amount or more, even if you don’t get a bill. If you don’t do this then this hurts your credit and as I said this will be a large factor on how you handle loans and monthly payments for the rest of your life. You don’t want to start having bad habits now at this early stage in your life for credit issues such as getting a mortgage, furniture, cars, cell phones, etc.

6. Pay Off Your Student Loan As Fast As You Can

Understand the payment options provided by your lenders to support your situation financially to get ahead. With some options, you can minimize the total cost of the loan by making higher monthly payments to save money down the road after school.

With all of these points remember to keep focusing on ways in your daily expenses to save dollars here and there or to make more money here or there with a small business or a part-time job. Cut your corners and save yourself financially so you can enjoy your future.