Saturday, 14 June 2008

Debt Consolidation

Many people have problems with debt - they start are using credit cards for convenience, and don't immediately appreciate that anything you charge has to be paid back! Of course, they know it in an abstract sense, but they are happy to not think about it. After all, they can afford the minimum repayment, so what's the problem?

I never got into any strife with credit as I always treated credit purchases as if they were cash - if I didn't have the money in the bank, or at least KNEW I'd have enough to pay off the CC balance in full at the end of the month, I simply didn't make a purchase. I was also luckier than most in that my uni studies didn't cost much (HECS only commenced after I'd started university, and cost around 1/4 of the full cost). However, many people use credit to buy goods and services they can't really afford at the time, or rely on using credit to make ends meet when some emergency arises. The big problem with using credit to get through an emergency or fund your lifestyle, is that once your credit is maxxed out you are in a worse situation than before - unable to maintain your lifestyle or pay for expenses, and yet lumbered with credit repayments, often at exorbitant interest rates.

While it would be nice to think you can dig yourself out of such a situation, it's usually helpful to get outside assistance. After all, good money managers seldom get into such strife, barring a major life crisis.

One source of help with credit card debt is NetDebt. Their website says that they "provide an easy, no-nonsense method of obtaining sound debt advice and an online help to eliminate debt problems". The website is nice and clean, although I was annoyed that the frequent question link just took you to an eligibility questionnaire (I made up some overdue debt figures to get to the next screen), and that the "how the program works" link took you to a talking head, sound-only pop-up. For such a service I'd want to read a full product disclosure with complete details of the fees, charges and costs involved. Although debt consolidation can help to eliminate calls from creditors, simplify multiple payments into a single monthly payment, and possibly get the interest rate reduced or some of the debt forgiven, there are many stories about people in debt who were actually worse off after using a debt consolidation service. For example, the cost of achieving lower monthly repayments may often be a much longer term required to pay off the debt. Especially since the cost of the debt consolidation service can be "invisible" - simply tacked on to the total amount owed, hence extending your repayment term, and the total amount of interest eventually paid, significantly. Anyhow, if you are in dire need for credit card debt settlement, NetDebt may be worth a look. But I'd make sure I was aware of the full cost before entering into any binding agreements.

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1 comment:

Sofia Kim said...

There are various debt consolidation programs, which gives you a lot of options. You could either select a paid service or go for the many free services available. Thanks for the article!