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"If stupidity got us into this mess,
then why can't it get us out?"

Will Rogers
 
 
Fiction Is Not Your Friend


Because debt consolidation has become so very popular in recent years, many companies that extend credit have opened debt consolidation companies. Some companies in the credit business do not necessarily own debt consolidation companies, but they have strong affiliations with a particular company. What this means is that when your creditors start to see you having credit problems, they may start to push debt consolidation on you, providing it is debt consolidation from their preferred company.

Your creditors have an ongoing business relationship with you, which means that they are allowed to call you and suggest debt consolidation. Even if you are on a do-not-call registry, they can still contact you. And they will!

That's why you need to know the major myths (and truths) about debt consolidation. You may not hear it from your creditors as they try to convince you to sign up for debt consolidation programs they offer or recommend.

Myth #1: My Creditor is Forcing Me to Consolidate My Debts

Creditors have an agenda (they want to get paid) but they donít have a whole lot of legal power to make you do things and they certainly donít have the power to force you into debt consolidation. Debt consolidation is an option open to you,  not a plan they can force down your throat.

What creditors are allowed to do varies by state law. Your certified credit counselor can fill you in on what creditors are and are not permitted to do. But hereís a hint: in the U.S., they canít put you in jail for debt and they canít force you into debt consolidation.

That being said, debt consolidation is not necessarily a bad thing and the companies or programs they recommend might actually be just the ticket for you. However, don't take their word for it. Investigate yourself with your certified credit counselor.

Myth #2: My Creditor Is Totally Neutral About Debt Consolidation

If your creditors are affiliated with a debt consolidation company and if they sense youíre having trouble paying your bills, they are very likely going to want to sign you up for their program.

Debt consolidation means that they will get paid, they wonít have to send your debt to a collection agency, and they can even make money on the debt consolidation. (The process is complicated but it involves setting up a debt consolidation loan with you then selling the loan.)

Now this doesnít mean debt consolidation isnít a great idea for you; it might be. And it doesnít mean that their debt consolidation organization isnít reputable and the best one for you; again, it might be. But remember theyíve got an agenda. So keep your eyes open! Even if they tell you they're being neutral and objective, do not believe them.

Myth #3: My Creditors Canít Really Do Anything to Me

There are legal restrictions on what creditors can do, but they arenít without power. In fact, your creditors are actually in a position to do you some serious harm.

If you donít pay your bills, your creditors can report you to a credit bureau. This is not difficult or expensive for them, and it works as a pretty good deterrent to deadbeats.

If you have secured loans, you may end up with a creditor repossessing your property. This often happens on defaulted car notes. If you are not paying your mortgage, in some states, you can lose your home.

Creditors are also free to seek legal remedy, meaning they can take you to court and get a judgment against you. This is a more expensive option (for them and you) but itís not unheard of. A court judgment can end up giving the court the right to seize your assets and sell them to pay off your debts.

Your creditors can't harass you, put you in jail, or beat you up for owing them money. They can however damage your reputation (and your financial future), take your property, and put you through the legal mill.

Myth #4: So What If There's a Judgment Against Me, Thatís No Big Deal

It can be. If your creditor gets a judgment against you, the creditor can call your local sheriff to come and take your property so that it can be sold to pay off your debt.

In some cases, the judgment may allow the creditor to take a certain amount of your wages. This is called garnishment. The judgment gets recorded at the court house and it may be used against you any time you want to buy real estate. It can also make it difficult to sell real estate (for instance, a judgment or lien against your house means you canít legally sell the house till the judgment is settled).

Apart from that, just dealing with a court case can cost you a lot in attorney's fee plus time and aggravation. You're better off keeping your creditors out of court, if you can manage it. Financial judgments will also affect your credit score and your financial future.

Myth #5: Bankruptcy is Never the Way Out

Actually, itís better than having your creditors get legal judgments against you. Bankruptcy is not a good solution, itís true. But in some extreme cases, it may be the least bad solution.

Bankruptcy will damage your credit score and it takes away a lot of your financial freedom. However, none of these things are permanent. If you can see bankruptcy as a learning experience and you are patient and persistent about getting back on your feet, it can be a viable solution.

Bankruptcy should never be your first choice for finding a way out of debt. But sometimes it's the best of limited options.

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