It almost goes without saying that consumers look forward to receiving their federal income tax refunds. For many, their refund is the largest check they may receive during the year. The average tax return is the equivalent to an extra month’s income.
Many refund recipients use the extra money to fund vacations, while others use it to pay off debts. Unfortunately for some people, their tax refund is not enough to climb out of significant debt. At the same time, they may be approached by debt consolidation firms.
At first glance, they seem attractive. After all, who wouldn’t want to combine their debts and consolidate them into one manageable payment? Many agencies tout their ability to free consumers from crushing interest rates that keep them from paying their smallest debts. Others rally around keeping consumers out of bankruptcy. With all the benefits that come with debt consolidation programs, consumers should be aware of companies that are only out to make a dollar at their expense.
With that said, consumers should be wary of the following when searching for debt consolidation programs.
Be wary of incredible stories (and statements) - Many consumers are seduced by stories of companies reducing their debt by more than 60 percent, or by wiping out their debt altogether for a certain fee. Stick to the adage “if it sounds too good to be true, it probably is.”
Do a background check – Before doing business with a debt consolidation agency, do your homework and look beyond the Better Business Bureau (BBB) or American Association of Debt Management Organization (AADMO) emblems on a company’s website. Check with the Attorney General’s Office or the Federal Trade Commission to learn about any complaints against the company.
Know the fine print - Debt consolidation loans commonly come with strings attached, so it is important to understand how the payment terms work. Essentially the terms (i.e. duration of the loan, monthly payment, and applicable penalties) should be explained in plain English and be part of the documents you sign.
If you have additional questions about debt consolidation firms, or are now experiencing difficulties with debt because of such an entity, an experienced attorney can advise you.