Debt Consolidation Red Flags


Any port in a storm might be solid advice for sailors, but it’s a good way to capsize your finances when you’re working to eliminate your debt. Too many people have too much to gain by steering you wrong. To compensate, you’ll have to maintain a heightened sense of awareness.

With that said, debt consolidation has proven to be an effective means of clearing up credit card debt. However, you have to be careful to ensure the choice you make helps eradicate your debt rather than exacerbate it.

To that end, here are some debt consolidation red flags to avoid.

A Request for Up-Front Cash

Yes, you might well encounter certain fees to get a debt consolidation loan. If it’s a debt transfer credit card, you might be looking at certain annual fees too. Home equity-based consolidation loans sometimes carry many of the same costs you’d encounter with a home mortgage.

But anyone asking you to pay a fee even before you submit an application is likely more interested in paying their own bills than they are in helping you pay yours. This is especially true when they say paying the fee will guarantee you’ll qualify for the loan.

In fact, the FTC’s Telemarketing Sales Rule makes it illegal for a seller or telemarketer to ask for — or accept — payment until after you get the loan.

A Bank Account Number Requirement

Never, under any circumstances, give anyone direct access to your bank accounts.

The request will be accompanied by perfectly legitimate sounding reasons for you to do so. They’ll say things like you’ll get a discount on your monthly payments, or it makes it easier to take care of the up-front fees (see entry above).

In reality though, it just makes it easier for them to steal from you.

Don’t fall for it.

Advice to Stop Paying Your Debt

The whole point of credit card consolidation is to pay your debt off in a way that helps you maintain your good credit history.

After all, in most cases, you’ll need a strong credit score to get a debt consolidation loan in the first place. Anyone advising you to stop paying your creditors — and pay them instead — is out to rip you off.

“We’re Doing God’s Work”

So many people have sullied the word “Christian,” you’d do well to view anyone using it in the context of business with a side eye. There’s a whole new class of scam artist out there, pretending to reflect righteous values, when what they’re really trying to do is steal in the name of the Lord.

Beware of loan consolidation sites riddled with verses of scripture.

Remember, Jesus threw money changers out of a temple.

Now, with that said, yes, some churches do have credit unions and these organizations are on the up and up. The best play here is to do your due diligence to see with whom you’re really dealing.

Consult the Better Business Bureau to see if any complaints have been filed against the organization. Your state’s Attorney’s General office can provide reputational insights as well.

These are four of the leading debt consolidation red flags. The Consumer Financial Protection Bureau offers some more sound advice when it comes to credit card consolidation — including the pros and cons of doing it in the first place.

You’d do yourself a good service to take a look. The last thing you want to do is put yourself into a situation in which you encounter a whole new set of problems.

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