by Michael Killian

Created on: September 22, 2007   Last Updated: January 08, 2008

The American consumer is looking at a very scary environment! He/she is also becoming more and more vulnerable to serious debt collection issues. The new bankruptcy law, increased minimum credit card payment, tightening of debt counseling options, exceptionally easy access to very high credit limits and even skyrocketing fuel costs are bringing together a very volatile collection of issues. Couple all of this with massive marketing tactics to get you further and further into debt, and it does not take but minor mishaps to create a major financial disaster.

When that debt mishap occurs a very normal and common reaction is to seek debt consolidation. But debt consolidation can have some very negative consequences. For example, using equity in a home to pay off unsecured debt simply makes unsecured debt a secured debt a very unhealthy financial maneuver. Similarly, debt consolidation may appear to be relief but all it is doing is prolonging the agony and not correcting the situation. Meanwhile, it is adding interest to a very bad situation. Of course creditors love it.

The fact is, however, the key to debt consolidation relief may be early debt management counseling. But waiting until "things get better" before talking to a debt counselor may be very dangerous.
Are you using 30-50% of your available credit? Have you missed a single payment due to a tight budget? One payment was always a danger sign. But now one payment late is absolute jeopardy.

Things are different today.

In former days the internal collectors from the original creditors worked accounts for 6 months before they charged them off and farmed them out to outside collectors. Now it is 2-3 months.

In the past almost every creditor would give any cardholder 2 chances at credit counseling and the client had to miss payments for 60 days before they were dropped from the program. That is all over at many banks now.

Before, if the client missed 2 payments and then called a debt counselor, new proposals could be set up and all the accounts could be back on track. They could miss one payment and nothing happened except for late charges. Now for example, Bank One drops a consumer at 45 days and they will not accept another proposal. Similarly Direct Merchants, which offers an excellent rate of 5.9% for the program drops them at 45 days, raises the interest rate to 29.9% and the client has to wait a year before they will accept a new proposal. There are other examples but hopefully the above will sound enough alarms

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