If you’ve ever had debt problems, you know how stressful and difficult it can make your life. You also know there are no easy answers to getting it resolved. Getting on top of a significant debt problem can be a long and difficult process, and finding the right help is complicated. However, it is also a very important step in getting back on the road to financial health.
When consumers go out into the marketplace to find a company to help them solve their debt problem, many become overwhelmed very quickly. There are many different companies out there in the marketplace, and the solutions they offer can be confusing. It is easy to make a bad decision if you are unfamiliar with the language and the different types of products on offer.
One of the first things you should do is familiarize yourself with the terms used to describe the services. This can be difficult too, as many companies, especially the not-so-reputable ones, will interchange these terms to try to lure consumers into their business. The best thing you can do is educate yourself on the true meaning of these terms upfront, to avoid agreeing to something that is likely not the right solution for you.
One of the solutions you will probably consider is a debt consolidation loan. There are many companies offering debt consolidation solutions, but a true debt consolidation loan usually requires that a consumer be up-to-date with payments and have a decent credit score. If you’ve damaged your credit and are behind in your payments, then other solutions exist that you may want to consider.
The most important thing to keep in mind when choosing a debt consolidation company to work with is this: Many companies make debt consolidation sound easy and fast! This is never the case, so be wary of companies that market their services in this manner. Finding a reputable company is the first and most important step in solving your debt problem.
What is debt consolidation?
When you begin your search for a reputable debt consolidation company to work with, expect a bombardment of offerings. Many of these offerings will be referred to as debt consolidation when they are actually something else. Therefore, understanding some basic differences can be a big help to those who are in debt trouble and looking for a way out.
Debt consolidation
Debt consolidation means that the consumer is taking a loan, usually from a bank or a finance company, and is utilizing that loan to pay off all of his or her debt. The goal is to combine or “consolidate” all of the debt into one loan that has a lower interest rate and a single payment.
Debt settlement
Debt settlement companies, such as National Debt Relief, work with consumers and those they owe to negotiate a lower balance and a lump sum payoff amount. This usually involves an agreement where the consumer makes payments into a separate account instead of to creditors. The debt settlement company then uses these funds to negotiate with creditors.
Debt management
Debt management companies work with consumers and their creditors to try to negotiate lower interest rates and, therefore, lower payments, to facilitate paying off the debt faster.
You can see that while these debt solutions are very different, it is easy to become confused when you start looking around for a company to help you with your debt problem. If you are looking for a true debt consolidation company, you will need to understand the differences and be sure that you are not actually buying into something else entirely.
As mentioned, to qualify for a true debt consolidation loan, consumers usually need to be up-to-date with payments and have a decent credit score. If this describes your situation, then you have many options for consolidating your debt. However, you will need to do your homework to find the right solution and company for your individual situation.
Ways to find a reputable debt consolidation company
Finding the right company to work with you in solving your debt problem is a very important step to getting yourself out of trouble. There is no surefire or easy way to do this other than through research and investigation. Some tools exist that you can use to help yourself, however.
The Better Business Bureau is a good place start. By going to their websites, you can see if the companies you are considering are accredited by the Better Business Bureau, and view their ratings. If a company has BBB accreditation, it will receive a grade, or a “rating.” Consumers can also log complaints through the BBB. This information is then available for other consumers to use in their considerations. You can find out if there have been any legal actions taken against the company.
Another good tool to use when you are searching for a good debt consolidation company to work with is to see if it’s registered with any of the agencies associated with the industry, such as The Association of Independent Consumer Credit Counseling Agencies or The National Foundation of Credit Counseling. If registered, it’s a good sign that the company is reputable. You can also get more information on companies registered with these agencies through their websites.
There are also many non-profit agencies in the debt marketplace, but be careful when choosing one to work with. A reputable company will have true non-profit status as evidenced by a certificate. If it can’t produce that documentation, be wary. Unfortunately, there are many companies in the marketplace that claim to be non-profit when they really aren’t.
Some companies go so far as to claim to have a particular religious affiliation, using this as a marketing scheme to try to attract consumers. They know that some consumers will put more trust in a company that shares their religious beliefs. Again, it’s typically just a marketing ploy.
At the end of the day, the company you choose should be one that you feel you can trust and one that has a solution that truly meets your needs. You should compare fees and products for all companies you are considering. Just because a company maintains a non-profit status, that doesn’t mean its fees will be lower.
Things to watch out for
Once you have done your research and selected a company to work with, reach out and ask some important questions. Your interaction can tell you a lot about the type of company it is, and you should reserve making a final decision until you have had this important meeting. Be wary if you encounter any of the following warning signs.
The “bait and switch” method
Disreputable companies will advertise debt consolidation services, but when you make contact, they will immediately start pitching an entirely different product to you. Listen carefully and know your terms and definitions as discussed here. Remember, debt settlement and debt management are not the same as debt consolidation. Debt consolidation is simply taking out a new loan with better terms to pay off your other debts.
Trying to close the deal today
If the company you are talking to about your debt consolidation starts trying to get you “signed up” immediately, that should send up some red flags. While everyone with a significant debt problem is anxious to get it resolved, don’t let that be motivation to make a quick decision. It’s important that you talk to several companies to find the best solution for your individual circumstances. If a company is trying to push you into a quick decision, it’s probably not the right company for you.
Making it sound fast and easy
There are no fast and easy solutions to a significant debt problem. If the company you are talking to makes it sound like it has a solution that is too good to be true, it probably is. Be wary of a representative of any company that tells you he or she can solve your problems quickly and painlessly. Getting out of debt takes time and effort.
If you, at any point, begin to feel uncomfortable, take a step back from the situation and hold off on any decisions. Representatives of reputable companies do a lot of listening to help their customers find the right solution. If you find yourself in a situation where the company’s representative is doing all the talking without asking you many questions about your individual circumstances, this should be a big concern.
Important things to consider
Once you have made the decision to go forward with a debt consolidation solution, you will have many other decisions to make as well. You should be paying attention to details and making comparisons between companies to find the right program for yourself and your individual circumstances. What this means is watching the numbers and making sure that what you are paying to consolidate your debts actually makes financial sense.
Interest rate
One of the characteristics of a successful debt consolidation loan is a lower interest rate than what you were paying on your previous debt. Otherwise, you are just spinning your wheels. This can be a point of negotiation and is one of the most important factors in getting your debt consolidation right. Don’t be fooled by lower payments, as that isn’t the true indicator of long-term savings.
Terms of the loan
This is another very important detail to investigate. Here, again, lower payments are not necessarily a reflection of the right loan terms. If the loan term is long, it will obviously stretch out the payments while making them lower. In actuality, you may end up paying more money, in the form of interest, in the end.
Closing costs and fees
Some companies charge upfront fees or other costs to close the loan. Many times, consumers will opt to roll those costs into the loan balance. It is important to understand that you will pay quite a bit of interest on that money over the life of the loan, so get your calculator out and figure out if that is the right move. Sometimes, consumers will discover that they will actually pay less interest if they just put their nose to the grindstone and pay off their debt on their own.
There are several ways to mitigate your debt on your own, but it takes a lot of discipline and diligence. A debt consolidation loan can be the right decision for many consumers if they go about it in the right way and pay attention to the details. Don’t let the stress of a heavy debt burden push you into making a bad decision. If you are still able to meet your obligations each month, take the time to find the best possible solution for yourself and your family.