Debt Consolidation Ads Won't Solve Your Financial Crunch
22 September 2007 Turn your loan into profits and congressional lobbying fees for the lenders' shareholders. If you've seen the number of advertisements for debt consolidation loans and mortgage loans on Yahoo! in September 2007, one might assume from the ads that immediate cash is there for the take.
No matter how low the interest rate though, be aware that your payments contribute to lobbying Congress on behalf of the lender.
MasterCard revealed this week that the nation's No.2 credit card company paid $880,000 in first half of 2007 to pressure Congress. Some $280,000 of the funds went to Sidley Austin LLP to help reach out to lawmakers in the Beltway for swaying decisions on online gambling and prescription drug purchases. Republican David Dreier's well-connected former assistant, Ryan Rogers, is one name registered to lobby Congress on behalf of MasterCard.
Nonetheless, dig a little deeper before clicking a Yahoo! advertisement and taking out a $40,000 loan to pay off credit card debt. The first question you should ask is "Why do I need the money?" If your finances require consolidation it only means your budget is over extended.
That is your problem. The only way to solve credit debt is to cut up the card and live within your means.
Bank of America (just one of dozens of lenders advertising on Yahoo! in September) has a bargain for those consumers living beyond their means -- the American Way certainly. If you need $40,000 to survive a credit crunch, Bank of America will "give you" $50,000 at a lower interest rate.
Sounds exciting, but hold that thought.
CLOSING STOCK PRICES 21/09/07
Bank of America (BAC) $51.24: Flat for 12 months but up 24 percent on 24 months.
CountryWide (CFC) $19.61: Down 47 percent for 12 and 24 months.
Capital One (COF) $69.02: Down 5 percent for 12 months and down 14 percent on 24 months.
MasterCard (MA) $146.56: Up 137 percent for 12 months, and up 240 percent from the IPO of $45 in May '06.
Sally is in debt up to her hairline. She loves going out to eat at expensive restaurants and must buy a $500 designer purse every quarter to keep up with her co-workers' taste in purses. She has built up credit card debt of $37,532 and she needs to lower the payments so she can spend more. She owns a home worth about $300,000 and owes $260,000 on the mortgage.
So, Sally applies online to Bank of America's advertisement. Given the difference between her mortgage and value of the home she can get as much as $60,000 according to Bank of America's calculator.
Our Sally does have limits though and decides she will be fine by just borrowing $40,000 today.
She is approved.
Beginning in October Sally will have cut her monthly credit card payment by half with the equity loan to $369. The life of the loan is 25 years and the interest rate is 10.19 percent. So her lifestyle, which had cost $37,000 and change --beyond what she could afford-- and now funds Bank of America $110,700 at the point of equity loan payoff.
If Sally opted for Bank of America's "Best" choice, as advertised, she could have applied for a $50,000 equity loan at $443 a month and an interest rate of 9.69 percent, or $133,041 in total.
The credit card holder would be better off with a personal loan from Bank of America, and spread out for 120 months, Sally would pay $454 a month or $54,860 in total.
Before you sign-up for the easy way out with a Yahoo! paid advertisement from Bank of America, CapitalOne, or Countrywide (oh yes, they are very much still in business and aggressively advertising this week,) or LowerMyBills and other of the others do check with these free online federally-sponsored resources.
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