Get Out Of Debt Mistakes To Avoid

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Thursday, November 13th, 2008 Subscribe To Our Feed

Anybody who is in debt wishes they could wave a wand and the debt would disappear. Unfortunately, there is no magic wand to make getting out of debt easy. The only way you can get out of debt is to establish a plan where you pay more on your accounts than just the interest due. Be aware that as you are searching for the disciplined plan that fits your needs, there are some mistakes that can make things worse rather than better.

Get Out Of Debt Mistake #1:
Signing Up With a Scam Artist for Debt Consolidation or Debt Negotiation

If the individual tells you they can negotiate with your creditors to pay off your debt for pennies on the dollar, beware. If you think something sounds too good to be true, it probably is. Debt negotiation specialists can have a long-term negative impact on your credit report and therefore are a very risky choice. Fraudulent debt specialist will pocket your cash and never pay your creditors. Check with your state attorney general to find out if there are outstanding complaints against the company that is offering you their services. Typically, debt consolidation specialists will offer you loans with very high fees and interest rates. They will also require you to put your house up as collateral.

Get Out Of Debt Mistake #2:
The Teaser Interest Rate Game

The credit card companies know that people love seeing credit card offers of zero percent interest for 12 months. It is very tempting to try and take advantage of these types of deals. Consistently moving your credit from one card to another will cause your credit score to fall. Once your credit score falls, you will no longer qualify for the teaser rates.

Get Out Of Debt Mistake #3:
Using a Debt Repair Service

Debt repair services do not offer a legitimate service and may actually encourage you to do things that are illegal. These services will offer to help you obtain a new identify, such as a new Social Security number. This activity is highly illegal and if you get caught, you could face federal fraud charges. Debt repair services will also to promise to clean up your credit report by checking for and correcting mistakes. You can do this yourself for free. Don’t pay anyone who wants to charge you for a debt repair service.

Get Out Of Debt Mistake #4:
Using a Home Equity Line of Credit

Many people used a home equity line of credit to pay off their credit card debt and then turned around and maxed out their credit cards again. Once the credit card payment got too high, the homeowners took out another loan against their house. Now many people are at risk of losing their homes because the payments on their home equity lines of credit have gotten so high they can no longer afford to pay them. A home equity line of credit is secured by your house where credit card debt is considered unsecured. If you don’t pay your credit card debt, you won’t lose your house. It is never a good idea to pay back an unsecured card debt with loan against your home.

Get Out Of Debt Mistake #5:
Getting Caught Up In a Home Payoff Scam

If you are facing a foreclosure, the lender files notice with your local county clerk’s office. House payoff scam artists will use this information to find potential targets. These scam artists will say things like I’ll stop your foreclosure or I can save your home or I’ll give you quick cash for your home. Typically they are going to ask you to temporarily sign over your deed. They’ll tell you that you can continue to live in your house at a low rent until you can get back on your feet and pay the mortgage again. The problem is that once you sign over your deed, you no longer own the house and you will probably never get it back. These scam artists will pocket the money you give them for rent and never pay the mortgage. Your house will eventually be foreclosed and you will end up with nothing.

Get Out Of Debt Mistake #6:
Closing Paid Off Credit Cards

Once you’ve paid off your credit cards, don’t close them out. Let your credit cards sit with a $0.00 balance because this will add to your total available credit. You can actually improve your credit score with the amount of credit that you have available. When determining your credit utilization ration, credit scoring companies will look at your available credit level.

Get Out Of Debt Mistake #7:
Disputing a Charge and Not Paying a Creditor

The faster way to destroy your credit score is to stop paying a bill or ignoring your creditors. When the creditor reports your account as non payment, your credit score can drop as much as 100 points. The credit rating agencies view a non payment as someone who is in trouble. Even if you don’t agree with a charge, don’t stop making your payment. File a formal dispute in writing against the charge; don’t just make a phone call. If the amount that you are disputing is small you might want to consider if the effort to fight the charge is worth ruining your credit score. Whatever you do, don’t just ignore the charge and stop paying.

Get Out Of Debt Mistake #8:
Working With a For-Profit Credit Counseling Service

You should never work with a for-profit credit counselor. You will be making money for their company and you could be using that money to pay off your debt. There are plenty of resources that will help you lower your debt liability and they are free. A good non-profit credit counselor will help you pay your bills, negotiate lower interest rates with your creditors, offer classes on debt and money management plans. Don’t pay for a service that you can obtain for free.

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