How to Choose a Debt Consolidation Service

25 May

How to Choose a Debt Consolidation Service

There are many debt consolidation services online, promising the same thing – get rid of debt fast so that you can finally move on with your life, but these services are not created equal. So if you’re in the middle of deciding which one to select for help with an unmanageable debt, check out the following for a guide on how to evaluate several companies.

debt consolidation loan

Know what debt consolidation is

Don’t be someone who doesn’t understand what the term means, as it might put you into the further financial trouble. Know that consolidating debts is combining multiple debts into a single loan, letting you pay for one monthly payment and with one interest rate. It helps you manage payments with favorable terms, usually with a lower interest rate.

Understand what you will be getting

Take note that not all debt consolidation companies work in the same manner, with the same terms, etc; some may offer only settlement, others loan and the rest management. So if the service you’re looking is to ease payments and get better loan terms, you may want to get assistance from a company offering a debt consolidation loan, which amount may be able to cover the debts you’re looking to consolidate.

When approved, the loan with be used in paying off old debts, including credit card loans, car loans or mortgage.

Ask about repayment period and interest rate

Is the new loan’s repayment time longer than the old debts you’re currently paying? Will it just make you end up paying more debts? If the loan can help you manage payments, then it may be a good choice.

Know why you want a debt consolidation loan, which repayment period can be longer meaning you need to pay for a longer time.   But if you want to pay less in a monthly bill, then the only option for you may be a longer repayment period.

When getting a debt consolidation loan, see to it that the interest rate from it is actually lower than what you’re paying now; if not, then it might cost you more debts.  So at the end of the day, it matters to scout for and find the lowest interest rate for a debt consolidation loan. You can use online calculators to figure out how the low interest rate can affect the repayment plan as well.

Check for reviews

Read reviews about the loan company online to know the people behind it are. Look for both positive and negative reviews but shortlist those with mainly positive feedback.

Again, some companies are not loan companies, but simply counseling service or debt management/settlement companies. Such offers are for individuals who have a poor credit standing, which also means they’re not qualified for the loan.

Briefly, credit-counseling services are money management counselors, who can assess your current financial situation. They can also work with you in developing a financial plan that may be able to help you get you back on track with your finances.

Meanwhile, a debt management plan is a service that makes one payment to the credit counselor monthly or within a pay period.  Then, he will make the monthly payments to the creditors. In that case, this type of service will not be able to lower your debt.

The reason is that the credit counselors are not negotiating reduction in the owed amount, but they can help lower the monthly payment. They do it by negotiating period extensions over which you’d repay the loan and getting creditors reduce the interest rate.

On the other hand is a debt settlement plan. It is often used as a last resort, which you might not be ideal for consideration unless you’re on the verge of default or you’re on default.   What the company does is negotiating with the lender about withholding payments.   By considering this option, you will pay them, and then they will put the payment in escrow and allow your loans to be put into default.

Bottom Line

Know the people you are working with before settling for a debt consolidation company that can help in getting your finances back on track. Choose a debt consolidation service with the reputation in the field as well as can give you sound advice on which option to take – debt consolidation loan, debt management plan or debt settlement plan.

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