Once someone is already in debt, it's all too easy to fall into a fiscally unhealthy cycle of crushing interest rates and falling behind on payments, which increases those interest rates and damages their credit score in the process.
Debt consolidation can be a godsend once someone has fallen into this cycle by bringing down interest rates to a manageable level and reducing stress in the process.
We talked to Ariel Pryor from the financial rehabilitation company ReallyBadCreditOffers.com about debt consolidation and what to look for.
Can you talk a bit about how debt consolidation can help someone improve their credit score and why it's a good idea?
In our perspective, consolidating one's debt is less about credit score and more about restructuring to buy time and breathing room to address the fundamental financial health. A family being crushed by high interest payments - most commonly from maxed out credit cards - is often scrambling and doing everything they can conceive to do throughout the month; only to see themselves fall behind further, or at best break even from month to month. One's credit score is known to be impacted by high credit-to-debt ratios, but when people find themselves in such situations, their credit score is typically the least of their concerns.
Restructuring your debt through consolidation, as a strategy, can reduce a family's debt service burden overnight, giving them the breathing room to roll the extra savings into reducing what they owe and freeing up money in their budget to make sure they can pay their bills on time.
When someone is living paycheck to paycheck, barely making it with a maxed out budget, it's an incredibly risky position to be in, where any financial surprises can result in missed payments and shortfalls. Credit scores suffer when this happens. Responsible consolidating to reduce costs is a powerful tool to help people change the trajectory of their finances.
Can you give a rough example of what a high interest rate might be, as opposed to those seen as part of a debt consolidation plan?
From my perspective, if you're paying a single percent in interest more than you have to, it should be considered high.
According to Bankrate, average variable interest rates are presently hovering at roughly 16%. Folks recovering from a bad credit history can commonly see rates on cards in ranges of 23% up to 29.99% APR. If balances get out of hand with rates like that, it is easy to see how the debt service could reach "crushing" levels.
In my opinion, there seems to be a need in this industry to over-complicate matters, when all that is really needed is a healthy dose of common sense.
Whatever your interest rate is on your current loans and credit lines, if you have a cheaper alternative to hold the debt, it should be considered. If your current credit card charges you 18%, and you have access to another at 14%, what are you waiting for? Transfer that balance and start paying less. My advice is to seek out and find the lowest cost alternative you can find, and to consider ALL options.
Unsecured personal loans can be pretty flexible, as they offer rates from 9%-20%, which can provide a powerful savings opportunity in many cases. Secured loan options can be even more powerful. A home equity line of credit is an incredibly powerful means for families who have the equity in their home to reduce higher cost debts. Ultimately, if setup fees plus interest rate equal savings, then it's worth considering consolidating what you owe into cheaper credit lines.
Are all debt consolidation plans the same?
Ever heard the expression, "If you have a hammer, everything looks like a nail?" The goal may be the same for most people who work with a debt consolidation agency, but someone's financial situation and needs can be as unique as a fingerprint in my opinion.
Yes, debt consolidation services usually approach the situation in a similar manner, i.e. counseling, negotiations with creditors, option assessments, etc.; but how skillfully and aggressively they pursue their clients' interests can certainly vary dramatically.
The Really Bad Credit Offers perspective is that more often than not, there ARE better options than the average debt consolidation agency available to fix your financial problems. When your financial world is falling down around you and the debt collectors are hounding you, it's all too easy to feel as if every door has been closed to you and that there are no good options - and it's easy to fall into a "why try, it will just fail like everything else" attitude. Hard working, good people can fall into a state of what I call "asset blindness." They can easily lose sight of all the personal and financial assets they possess.
In other words, some folks need only to be reminded of better options which may be available, like personal loans to reduce costs, property they could leverage, or other financial programs they may qualify for. Some folks need only to be reminded of the vast resources of innate creativity, hard work, and ingenuity they have at their disposal to come up with a creative, outside-of-the-box solution to their financial problems. The best solution of all is to GROW out of your money problems without any borrowing involved whatsoever.
Can you talk a bit about why it's important for people to reevaluate their financial attitude and habits when trying to get and stay out of debt?
It's true that some people may repeat the same mistakes which got them into debt in the first place. Some people may not be aware of the unresourceful decision-making strategies and approaches to their money matters. In such cases, counseling may be helpful to increase awareness of what they may be doing to sabotage their success. As mentioned above, other people can be so immersed in the struggle they face, it can be helpful to get an outside perspective. However, it's my opinion most people are more than smart enough to know what's in their interest.
The common assumption is that someone who finds themselves facing debt problems is financially unsophisticated.
It's incredibly condescending to assume someone needs a lesson on basic financial principles or some other sort of nonsense, when in my experience, good, hard-working people can often find themselves struggling financially even if they made all the "right" and "responsible" choices. Job loss, business failure, legal problems, illness and a number of other unexpected challenges are capable of putting a responsible average family underwater overnight. These people don't need lectures; they need options, they need help. They are more than smart enough to know what is the best option for them. We try simply to present options they may not have been aware were available to them and let them decide what will benefit them most.
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Can you share a tip or two on things to increase someone's credit score while going through the debt consolidation process?
I will give some unorthodox advice here.
Forget about your credit score. It will take care of itself. Instead, focus on creating an ironclad, unstoppable financial foundation in which you save much more than you spend to live.
Become an unstoppable financial juggernaut, and the rising tide of your success will raise your credit score accordingly.
Pay off everything you owe. Get out of debt. Stop losing money to interest. Use whatever tools are at your disposal to get there.
If bankruptcy makes more sense in your situation, do it.
You are more than just a number. You are more than your credit score. And a life of financial abundance is something we all deserve access to if we are willing to pursue it with vigor and creativity.
Are there any particularly reputable debt consolidation companies that you'd recommend? What are some signs of the best debt consolidation companies out there?
We connect people with bad credit to reputable financial programs and services which they may not have been aware were available to them. Our goal is to get people off their financial knees so they can seize the financial abundance they deserve.
A good bank, lender, agency, or service presents all costs and fees up front, makes good on their promises, and provides powerful financial tools which consumers can use to empower themselves. The best companies remember applicants are real people with real struggles and real dreams.
It's my belief that great companies empower people to help themselves. We all stumble; getting back up sometimes just requires a helping hand.
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