Having a significant debt problem is stressful for consumers, and it can make life very difficult. Unfortunately, resolving an oppressive debt load can be a long and complex process. Finding the right help can prove to be a daunting task, but making the right decisions is imperative to getting back on the right track.
There are many choices when a consumer begins to look for help in the very crowded debt consolidation loan market. It’s easy to become overwhelmed and confused by all the different terminology and products on offer in the marketplace. Additionally, when someone is under stress about a debt problem, it can be all too easy to fall prey to predatory lenders and make a bad decision. Educating oneself and doing the proper amount of research is a necessary and important step in finding the right product to help resolve a significant debt problem.
Becoming familiar with the language lenders use when describing and presenting their products is an important first step. This isn’t always easy, as there are sometimes subtle differences in products and their terms. In addition, companies that don’t have a consumer’s best interests at heart will use language and terms meant to confuse and intentionally mislead potential customers. It’s imperative that consumers become familiar with the different products and terminology before starting to look for a solution. This way, they can be sure to avoid getting into a situation that isn’t right for them and their debt problem.
A popular solution among many is consolidating debt into one loan. Lending institutions, banks, and sometimes even credit card companies offer debt consolidation loans. Generally, a company or bank offering a legitimate debt consolidation product will require that borrowers be up to date on payments and have a decent credit score. Therefore, those who’ve fallen behind on their payments or don’t possess a good credit score might consider other debt solutions that may be better suited to their situation.
Many companies in the marketplace will make debt consolidation sound like a fast and easy process. Unfortunately, this isn’t the case, so consumers should be vigilant and watchful for companies that describe the process in this way. It’s important that consumers find a reputable and honest company to work with before even beginning the process of debt consolidation.
Debt consolidation vs. other offerings
Understanding what a debt consolidation actually entails is an important first step in making sure a potential borrower works with the right company in resolving a debt problem. Unfortunately, those looking for a debt consolidation solution will face offers for a plethora of other products when searching the marketplace, some of which could be unwise. Therefore, it’s smart to understand the differences between debt consolidation and some of the other products offered.
What’s debt consolidation?
Debt consolidation is the process of taking out a loan to use to pay off existing debts such as credit cards and personal loans. Usually, debt consolidation loans will offer a consumer a lower interest rate than what he or she is currently paying on credit card and other debt. The benefits of a debt consolidation include making one payment per month instead of multiple payments to lenders, and paying less interest overall.
What’s debt settlement?
Debt settlement is a process of negotiating a lump sum payment with a lender to settle a debt. Companies such as National Debt Relief work with customers to save money by making one payment a month into a savings account to use in payoff negotiations with creditors.
What’s debt management?
Companies that specialize in debt management work on the behalf of their customers to manage repayment terms with creditors. This means the debt management company will attempt to negotiate interest rates to a lower rate and help manage customers’ payments so they’re on time. The goal of debt management is to help consumers pay off their debt faster and with less interest.
All very different solutions
As you can see, while these solutions all have a similar result, the details are significantly different. Potential customers can easily make a bad decision if not familiar with the different products on offer.
Consumers looking to qualify for a straightforward debt consolidation loan generally need to have a good credit score and be current with payments. If this is the case, they’ll find themselves in a position to consider many options to consolidate their debt.
Finding a reputable debt consolidation company
Consumers looking for the right company with which to work have to do their homework. However, the work they do to find the right partner will pay off down the road. While the ultimate decision depends on research and good decision-making, some tools exist that can help.
The Better Business Bureau
Checking with the Better Business Bureau is a great way to start any research. The BBB has a very robust website where consumers can see if the company they are considering has an accreditation. If it does, the BBB will assign it a rating. Consumers can also see if there have been any complaints against the company through the BBB website. In addition, prospective customers can see if there have been any legal actions filed against the company.
Check for agency affiliations
Reputable debt consolidation companies are registered with industry associations such as the Financial Counseling Association of America or the National Foundation of Credit Counseling. If a company is part of one of those, it’s a good place to start.
Check for non-profit status
Some great non-profit companies exist out there. It’s important that potential customers research any company claiming a non-profit status. If a company is truly non-profit, it’ll be able to produce a certificate as proof. If the documentation is requested and the company hesitates or is unable to produce it, there’s cause for suspicion. Legitimate non-profit organizations should be willing and able to show its credentials.
Beware of companies claiming a religious affiliation
Some companies try to attract customers by claiming to have a religious affiliation. By associating with a certain religion, these companies try to build trust and make customers feel more comfortable about doing business with them because of shared religious beliefs. Unfortunately, these companies are rarely genuine in their beliefs.
In the end, consumers should look for companies that hold up to scrutiny and research, and ones that offer a solution that meets their needs. Comparing fees and other costs is imperative to making a good decision as well.
Pitfalls to be aware of
Consumers who’ve chosen a company to work with should be sure to ask some important questions, and should withhold a final decision until they feel comfortable they have all the answers they need. Most importantly, consumers should exercise caution if they see any of the following warning signs.
Bait and switch
Many companies will attract potential customers by advertising a debt consolidation product but will look to move them to another product once they’ve made contact. This is the bait and switch tactic. It’s important that consumers pay attention to the details and ask plenty of questions. Remember, consolidating debt is a straightforward process of combining debts into one loan with one single payment. If a lender is proposing something different, be wary.
The fast closing
There are no quick answers to a consumer’s debt problem. If a company is asking to get a consumer signed up immediately, that’s a warning sign. Potential customers should talk to several different companies before making a decision and should never feel pressured or rushed to make a decision.
The fast and easy pitch
Unfortunately, there are no quick answers to solving a significant debt problem. Lenders who make it sound like they have a quick solution most likely don’t have a consumer’s best interests at heart. If it sounds too good to be true, it most likely is. Consumers need to trust their instincts as well. Feeling uncomfortable is usually the first sign that things aren’t what they seem.
Important details to pay attention to
Once a consumer has made the decision to move forward with a lender, there are several details worth paying attention to. Details make the difference when it comes to getting a good deal or a bad deal on a debt consolidation loan.
Consumers looking to consolidate their debt should focus on the interest rate a lender is proposing for the loan. The interest rate on the new debt consolidation loan should be less than what the consumer is currently paying on credit cards. Borrowers shouldn’t focus on obtaining just a lower payment, as this isn’t the only indicator of a successful debt consolidation loan.
Longer loan terms are something consumers should be wary of. The payments may be lower, but consumers may end up paying more in the end. The goal of any consolidation loan should be to pay off debt as quickly and economically as possible.
Fees and other costs
Depending on the lender, there are often upfront charges, fees, or other costs to get the loan closed. Sometimes, the lender will offer to add these costs to the balance of the loan. Borrowers that don’t have the upfront cash for these fees may find this an attractive offer. Consumers need to understand that if they choose to finance these fees, they’ll pay interest on these fees for the life of the loan.
The bottom line
The best thing a consumer can do is research and become educated on the terms and language of the debt consolidation business. It’s important to understand that there’s more than one way to approach an oppressive debt problem. If consumers are disciplined and motivated, it’s possible that they can resolve their debt problem on their own.
If consumers pay attention to their credit card statements, they’ll notice that the credit card company has calculated a way to pay off the balance in three years. In fact, the law requires that this information be on every statement. By simply paying this amount on the statement each month, consumers can satisfy their debt within 36 months.
In addition, if a consumer is up to date on payments, it’s possible be eligible for a balance transfer to another card that offers 0% interest for a period. This can help a consumer reduce credit card balances quickly. It’s important, though, to understand what fees may apply to balance transfers and what the interest rate will revert to after the introductory period.
Lastly, consumers can employ the snowball method to pay off their debt. This method involves paying the most possible to the card with the lowest balance and paying minimums on all the rest. Once the first card is at a $0 balance, the consumer attacks the next highest balance using the same method. The amount of the payments snowballs until all debts are gone.
There are many ways to approach a debt problem. Consumers just need to educate themselves so they make a smart and informed decision. By understanding the terms and dynamics of the debt consolidation market, they can decide if using debt consolidation is the right choice.