Debt elimination: Do It Yourself |
By David Pilley on April 7, 2011
.jpg.aspx?width=75&height=75) In 2006, a company named Debt Solutions Inc. was taken to court. The Federal Trade Commission and the Washington State Attorney General ordered the company to stop doing business. The company had charged consumers hundreds of dollars for a so-called “debt elimination program” that offered lower interest rates and thousands of dollars in savings.
Since at least 2002, the company had been making unsolicited phone calls to consumers, breaking “do not call” rules. The company had also promised customers a full refund if they did not save at least $2,500 on their debt settlements. Few customers received the guaranteed refund, and they were not told that the promised savings could take years to achieve, nor were they told that simply paying more every month would result in more savings rather than a reduced interest rate. Debt Solutions Inc. claimed it was endorsed by the Financial Standards Council in Canada and the Registered Financial Planners Institute of North America, a claim which turned out to be false.
With the above scenario, you should be wary of companies offering debt elimination. In fact, you would be better off finding ways to eliminate your debt yourself.
You can first determine a plan of action by gathering your credit cards together. Consider a “high-to-low” or a “big-to-small” plan. That is, either apply higher than minimum payments to the card with the highest interest rate or do so to the card with the highest balance. Apply this extra payment amount to this card until it is paid off, and then go to the next one in order. Remember that while applying the higher amount to one card, you must also be making the minimum monthly payment on the rest of your cards, or you will be gathering more penalty fees.
When you’re trying to eliminate your debt, know that it will results will not be immediate. You need to do what you can in lowering the amount you owe, but you can’t use everything you have toward paying off credit card debt. Make sure that your debt-to-income ratio is not too high, since you need a portion of income to sustain your everyday life. If you have goods lying around the house and collecting dust, consider selling them to pocket some more cash.
Once you’ve established a payment plan, you can contact your creditors and see if you can improve some terms. You may be able to get a lower interest rate, by a percentage point or so, if you demonstrate a good history in making timely payments.
Only after you have tried to lower your debt yourself should you seek the help of a third party. If you are seeking the help of a company that touts “debt elimination programs,” always check with the Better Business Bureau first. If you don’t do this first, you may end up in a similar scene introduced at the top of the page. |
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