Credit Card Debt Reduction - Avoid These Loans!
Credit card debt reduction is important, but don't get duped into a potential scam. Let's say you have a significant amount of debt and don't know where to turn. Suddenly, like a white knight, several companies offer you money to help bail you out. While some services (such as debt consolidators) are certainly helpful, there are several others that should avoided at all costs. Here's a list of loans you should not take under any circumstances:
Instant Refund Loan. This loan is backed by your tax return. If you expect a thousand dollar refund but can't wait for the check to clear, many tax preparers and financial companies will loan you the money ahead of time. The costs associated with an instant refund loan are significant: in addition to a high interest rate, there are up front costs to apply for the loan, and an additional fee for filing your taxes electronically (generally around forty dollars). These types of loans are only good for ten days and you can pay over 100% interest on the money you borrow. It's best to wait it out and work on credit card debt reduction when your return arrives.
Car Title Loan. Let's say your car is paid off. A lender approaches you with a proposition: they will loan you money and use your car as collateral. Do not do this! Car title loans are usually short term (30 days) and charge high interest. In addition, you run the risk of losing your vehicle if you miss a payment, which may make commuting to work impossible.
Pawnshops. While not as popular as they once were, pawnshops still loan money out and use your hard goods (TVs, stereos and jewelry) as collateral. They generally loan out a very small amount of the goods value (notice a pattern emerging?) and charge high rates. Like a car title loan, you run the risk of losing your goods. If you are strapped for cash, you'd be better off selling the items yourself.
Advance Fee Loan. This loan requires you to cough up the cash in advance to qualify for a loan. This practice is not used by traditional lenders and they can be dishonest about the fees associated with this type of loan, which only slows your credit card debt reduction.
Payday Loan. Perhaps the most dangerous loan on this list. Finance companies will accept a post dated check and offer you the amount in cash less their fee. When payday comes, you pay them back. However, if you still cannot afford to pay the entire loan, they hold the balance and roll it over until the next pay period, adding a large interest rate. The longer this goes on, the higher the rates, until it's nearly impossible to pay them off. The snowball effect of a payday loan is devastating and the reason why they should be avoided at all costs.
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