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Be skeptical of debt relief/consolidation scams promising freedom

Most American households are only a few bad weeks away from financial insolvency. Many households don't have adequate emergency funds to cover their mortgage for several months, to say nothing of the other debts and expenses that families incur through daily life.

When you need to use credit cards to pay your utilities or buy your groceries, you could quickly get trapped in the dangerous pattern of borrowing more than you can repay every month. If you owe backdue taxes, you could face the garnishment of your wages or even prison. When an ad comes on the television advertising debt relief or consolidation services, the idea of getting your finances back under control can seem very tempting.

However, the money to run that advertisement came from somewhere, and that source is usually the excessive fees, hidden interest rates and other costs that the company passes on to the people that turn to them for help. The very place you turn for relief from your debt may capitalize on your financial struggles.

Debt consolidation is really just taking out another loan

Debt consolidation sounds great. Instead of needing to worry about multiple payments, different due dates and various penalties or fees, you only have one payment to make each month with one set of terms and one late fee.

However, debt consolidation can put you in a very vulnerable financial situation. Paying off your unsecured debt quickly can feel liberating, but you may still find yourself turning to those credit cards again to pay your monthly bills. In the long run, you could wind up owing twice as much if you overextend yourself on your various lines of credit again while still needing to repay the consolidation loan.

These companies often have dangerous policies that include increased interest rates later on or aggressive fees and collection tactics that could leave your assets and income vulnerable.

Debt relief often involves credit damaging settlements and big costs

Instead of consolidating your debt into one location, debt relief services often help you settle outstanding balances with your creditors for less than the total outstanding balance. On the surface, such a process may seem beneficial to those overwhelmed with that, but it is neither free nor straightforward.

The company that handles negotiating those terms on your behalf will likely charge you an exorbitant amount for their services. In addition to those fees, you will likely need to come up with lump sum cash amounts to pay your creditors. The debt relief company may offer you a loan to do so, potentially with dangerous terms for you as the borrower.

Additionally, while your credit card company may agree to take a loss and not pursue additional collection efforts on the unpaid remainder of your balance after a settlement, that doesn't mean they won't report a negative mark to your credit report regarding a settled balance instead of the account getting paid in full.

Instead of risking additional expenses or ongoing damage to your finances and credit, you may want to consider bankruptcy proceedings as a means of reducing your debt and regaining control over your financial services.

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