Debt Consolidation Loans: CCCS Warns Consumers to Shop Carefully

Every month, more and more bills arrive. You're falling further behind all the time. You have a hard time making the minimum payment on your credit cards; yet the outstanding balances never seem to decrease. You find yourself living paycheck to paycheck and would be in immediate financial danger if you lost your job. A debt consolidation or home equity loan, may seem like a solution to your financial problems.

Before you rush out and apply for these types of loans, Consumer Credit Counseling Service (CCCS) of South Texas suggests doing a quick analysis of your situation. According to CCCS, if more than twenty percent of your disposable income is going toward unsecured debt repayment, you're over your credit limit and should act to reduce your debt load. A debt consolidation loan can help, but only if it's a good deal financially.

"Debt consolidation loans are appealing because it is much easier to make one payment instead of writing checks to all of your creditors every month," says Lori Pridgen, director of community relations for CCCS. "But the reality is that it is hard to borrow your way out of debt. The hard truth is that to get out of debt, most consumers have to reign in their spending, create and stick to a budget."

When evaluating whether a debt consolidation loan is a good deal financially, consumers should ask the following questions:

What is the interest rate of the loan? The interest rate should be less than what you are currently paying on your debt. However, realize that you may be able to negotiate lower interest rates on your current accounts by contacting your creditors.

What is the length and terms of the loan? Often debt consolidation loans offer low attractive monthly payments by extending the loan for a number of years. In these cases, you can end up paying substantial sums in interest. Calculate how much your total payments and ask for a breakdown of principal and interest.

Am I swapping unsecured debt for secured debt? When you get a home equity loan, you take out a loan against the equity you own in your home. The advantage of this type of loan is that the interest charges are often tax deductible. However, you are putting your home at risk for foreclosure if you are unable to make the payments.

Am I willing to make lifestyle changes? All too often, people take out these types of loans, only to run up their credit card balances within a year or two. To be successful, you have to make significant lifestyle changes and alter your spending patterns.

According to CCCS of South Texas, there are alternatives to debt consolidation loans. They include the following:

• Collect on money owed to you or sell off unneeded items to raise cash for debt repayment purposes. Establish a strict budget with a goal of paying off indebtedness. CCCS offers free budget counseling and classes to help you with this essential money management skill.

• Make a second payment each month on the account with the smallest balance.

• Contact a credit counseling agency to learn more about debt repayment plans. Through these programs, CCCS will negotiate on your behalf with your creditors for reduced interest and finance charges and set up a plan to get you out of debt as quickly as possible.

For more information on budgeting or help with debt problems, contact CCCS, a non-profit, united Way organization providing confidential counseling, debt repayment and education programs for financially troubled consumers. It is a member of the National Foundation for Credit Counseling, the nation's oldest and largest credit counseling organization.

To schedule an appointment with a counselor or for more information, please contact CCCS of South Texas at (361) 854-4357 or 1-800-333-4357.