Advice from the Feds: Debt and Debt Consolidation, Part 1

The Federal Trade Commission (FTC) oversees lenders and lending practices. They work directly with consumers on credit and fraud issues. They even provide free, reliable public education on lending practices.

The FTC has an extensive website on consumer credit and lots of advice. While much of their focus is on debt, rather than debt consolidation, it is very useful. The webpage that this information came from ran several printed pages long, with very small type. Here it’s condensed for you, following their headlines.

SELF-HELP
There are things that you can do to get out of debt yourself long before you take more drastic measures, like debt consolidation. The first is to develop a budget. Your local public library has many of the same books as your major bookstore, but for free. May as well start right in controlling expenses. These books can help you build a plan to get out of debt and figure out if you need a debt consolidation.

Next, contact your creditors and let them know that you are working on making ends meet. Most lenders have ways of working with you to lower your monthly payments so that you can pay off your debt. If you’re going to debt consolidation, do it before it gets to the point of going to collections.

Try to communicate with your lender so that your debt doesn’t go to collections. If it does, your creditor cannot call you before 8 am, after 9 pm or at work (if your boss disapproves). You cannot be harassed. Lenders often work with people who are willing to pay. By keeping them in the loop, you likely keep your debt out of collections and preserve your ability for debt consolidation.

Be very careful with your car loan. Your car can be repossessed any time you are in default. Do your best to pay this loan. Read your loan paperwork carefully. If you are approaching default, sell the car and payoff the loan. It’s your best alternative.

Your mortgage is a little more forgiving. If you are going to be late on your mortgage, call your mortgage company and let them know. If you have temporary hardship, they may even be able to wait for your payment. If you can’t work something out with them, talk to a housing counseling agency. Some only help on FHA loans, but most will help anyone. It’s your tax dollars at work.

DEBT CONSOLIDATION
Debt consolidation loans may be able to lower your interest rate and your monthly payment. If you get a debt consolidation mortgage, the rules may be a little different than you expect. Be aware that failing to pay it may cost you your house. These debt consolidation mortgages do offer, however, the incentive of tax advantages. But, the loans may carry extra fees, called points that are not usually charged on other mortgages. Also, these debt consolidation loans generally take one to two months to close and require lots of paperwork. During that time you must continue making payments on all of your debt.

Other forms of debt consolidation loans are available, but are not discussed by the FTC.

Continued in Part II…

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