Mellody Hobson talks about debt consolidation.
You know those commercials you see that say they help you “get of debt the quick and easy way?” Debt consolidation companies can paint a very rosy picture for people who are struggling to get out of debt. And between credit cards, medical bills, and household expenses, that applies to a lot of Americans. We are addicted to credit. In fact, the average household with at least one credit card has nearly $16,000 in credit card debt.
But $16,000 is just the average. Many people are trying to cope with much higher and more overwhelming debt, and consolidation companies take away the stress of managing several credit cards and promise the end of collection calls. A lot of people in financial distress are sick of dodging calls from creditors and are seduced by the idea of “one affordable payment” every month.
Here’s the catch: In essence, debt consolidation is taking out one loan to pay off many others. But you can’t borrow your way out of debt, and the truth is that there simply isn’t a “quick and easy way” to get out of debt. Yes, debt consolidation companies can sometimes help you pay less each month at a lower interest rate—but that’s because the term of the loan is longer, which means you stay in debt longer. And the longer you stay in debt, the more you pay. These companies are in business, and they’re making money off of people who are already in dire straights.
Is that unethical, even illegal?
It’s a racket! In fact, The National Association of Consumer Bankruptcy Attorneys just issued a consumer alert at a press conference on Wednesday. Studies have found that most people who use debt consolidation services end up more deeply in debt and with worse credit scores than when they started. Although 41 state attorneys general have cited debt settlement companies as a serious problem and some have filed civil suits against them, criminal action is seldom taken. There are even companies falsely claiming to be non-profits. It’s an industry rife with fraud.
So what’s a debtor to do?
I know it’s tempting to just hand over your credit problems to someone else to manage, but when you consolidate debt, you’re treating the symptom, not the problem. You need to manage debt, not compound it. It’s best to settle your debts yourself. Reign in your spending and start saving. Then call each credit card company you owe, starting with the card with the highest interest rate, and try to negotiate a lump sum payment. You’ll need 25 percent to 70 percent of the total. Be sure to get a written statement from the credit card company that this is what they are accepting. If you need help, turn to credit counseling, not debt consolidation. To find a government-approved credit counseling service in your state, go to the Department of Justice’s website.
What’s the difference between debt consolidation and debt settlement?
As I said, debt consolidation is lumping all your debts into one new loan. You don’t owe your original creditors and you might pay a lower interest rate, but you’ll be paying it off over a longer period of time. Also, you might be required to secure the loan with collateral and could risk losing your home or your car.
Debt settlement is when you or a credit counselor negotiate with your creditors and offer to pay a lump sum that is somewhat less than the total amount you owe. Keep in mind you may face taxes on the amount the creditor has forgiven and your credit score may take a hit.
In both cases, of course there are some legitimate companies, but even the legitimate ones are in business to make money off of people who are already in debt. If you find yourself in a financial hole, the first thing you need to do is stop digging. The credit card industry was built on the allure of “buy now, pay later.” Unfortunately, the only way out of debt is to start paying it off. Now.
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This Week’s Celebrity Instagrams (10/15-10/21)
31 photos Launch gallery
1. Just a NY girl with BIG dreams....
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2. HAPPY CHILDREN=QUALITY PARENTING. We don't always see eye to eye on everything and that's normal. We're human beings. But we come together and do it right for what's important, the kids. We are not enemies, we are parents. And we are parents 1st. S/O to @monyettashaw for making Mason's bday memorable. S/O to @itscrystalsmith at home taking care of our other lil' Prince. ❤️❤️❤️ THIS IS WHAT CO-PARENTING LOOKS LIKE. #Blessed #Happy #AboveTheDrama #BiggerThanUs
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3. So happy to finally be able to share with you all that I’m the new Global Brand Ambassador for @Revlon! Follow my day on RevlonSnaps. Yay! Choose Love, Everybody! #RevlonXCiara #chooselove #ad
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4. Glam on point!!!@makeupbymotoko & @shaylinjoneshair #easybreezy @lifetimetv #beachesmovie #january2017 😘
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5. ✨True love ✨📸: @jessiemarrerophotography
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7. Today was not easy..but by the grace of God we all got through it. Words cannot express our gratitude for all of your Prayers, Positive thoughts and Support for us throughout the years. Tommy will be missed but most certainly never forgotten...And PLEASE don't ask "Where's Martin?.." he was there too...just not in this picture. Lol! God bless you all.. #LoveConquersAll #MartinShow
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9. West coast get ready for #RockyHorror. I will be live tweeting again. #letsdothetimewarpagain
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10. #THEKEYS pre order yours now ... Available everywhere #NOV22 #WeTheBest 🔑🔑🔑🔑🔑🔑🔑🔑🔑🔑🔑🔑🔑🔑🔑🔑🔑🔑🔑🔑
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11. We about to ROCK at #KCABlackBall!! All for our life-changing effort to end 🌎 AIDS.
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12. Today's #SNAPJACK is brought to you by @yazzthegreatest 😂😂😂💋💋💋
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13. Damn girl you kinda old to be headed to the Go Go. You coming in at the age they leaving. LMAO
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14. Daddy daycare B-Boxin with @acewellstucker @shopraisingace
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15. #FBF Naviyd & URV "LIL MONSTERS"
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16. HAPPY BIRTHDAY TO ONE OF THE BIGGEST LEGENDS IN OUR HIPHOP HISTORY! @snoopdogg CONTINUED BLESSING AND LOVE FAMILY!!!!! REAL OG!
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17. Thank you for a beautiful night VSU! Let's do it again! #HOMECOMING
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18. Had a great time this morning with my familia Erica, Griff & Truth!!
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19. Check out my interview on @essence facebook live. #inmyownwords #nycpromo #day2
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20. #She💋 #tbt #TheCoveAtTheAtlantis #DawgPawsAndAll
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21. Bae #retailtherapy
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22. Why me and @coryhardrict got the same pose... and notee... new mouth #naked
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23. When my husband is my personal 'hype-man'! it kills me every time! 💜😂 #WHATNOW #lostfiles📷
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24. Diggy Simmons
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25. Hand full of @jacquieaiche 💙💎💍 @esnail_la 💅🏾
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26. SuperSoulers! You can watch my interview with Carl Lentz live from my Facebook page, tomorrow at 11a ET| 8a PT. #SuperSoulSunday
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27. 💋 .. When the friendship is easy like Sunday morning. ☀️
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28. Sunday mornings are the best........... hugs and cuddles with my angel
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29. #huggar16 #hellohuggars
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30. My gym is everywhere!.. #RnBMoney #TheGeneral 📸: @twelvepastseven
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31. Nothing I would rather be doing... Rocko setting up our movie, Romelō working on a puzzle & Laiyah singing and sharing all she's learning at school... I'm so grateful for the joy they've brought into my life ... Praying for peace , joy & love in the home of EVERY family ♥️ #HeadScarfPJSunday LOL 😂
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