4 Tips for Evaluating a Debt Consolidation Company

The act of combining multiple debts into a single obligation, consolidation can be an effective means of regaining control when your finances are threatening to get out of hand.

It’s important to note, you can implement this strategy without a formal organization. In fact, all you really need, should you choose to go this route, is a debt consolidation loan company. With that in mind, let’s take a look at some methods for evaluating a debt consolidation company, as well as some of the alternatives you can pursue on your own.

Debt Consolidation Methods

The most common strategies include a home equity loan or line of credit, a personal loan and credit card balance transfers. Each of these has advantages and disadvantages.

For example, with a home equity loan or line of credit, you’ll exchange unsecured debt for secured debt. In other words, you’ll pledge an interest in your property in exchange for a loan to help make your credit card debt (which can typically be walked away from with a mark on your credit history) more manageable. The problem here is, if you cannot satisfy the obligation, you could be forced to sell your home to get the money to make the creditors whole. You’ll also pay loan origination fees and closing costs to get the money.

A personal loan can be a good way to go, but you’ll need to have a higher credit score and the interest rate you’ll pay will usually be higher than the one you’ll get with a home equity loan.

Credit card balance transfers involve higher interest rates still, plus you’ll likely encounter transfer fees and other costs.

What to Look for in a Consolidation Partner

If you’ve evaluated your choices and a consolidation loan company seems like the best path to take, you’ll want to consider the following factors.

  1. Evaluate the terms of the loan carefully. You want to be sure the length of the loan does not exceed the amount of time it would take you to pay off all of your debts separately on your own. This could make you pay more in the long run.
  1. Evaluate the reputation of the lender before you agree to anything with them. Keep in mind, there are always people lurking about looking to take advantage of your vulnerability in order to enrich themselves.
  1. Calculate how much you’ll pay in interest. You want to make sure the interest rate applied to the loan is less than you’d pay if you deal with your obligations individually. If your credit score does not allow you to qualify for a competitive interest rate on a consolidation loan, you may want to consider other strategies like debt management or debt settlement. Of course, you’ll want to carefully evaluate these companies before singing up, too. The fastest way to get an idea of their public image is run an online search with the company’s name followed by the word “reviews” — such as Freedom Debt Relief reviews.
  1. Remember to ask about the fees involved. Most loans come with some sort of origination fees attached. Be careful to ensure you’re coming out ahead in terms of what you’ll pay overall when the fees and interest are calculated all the way out.

Two More Things to Remember

Debt consolidation restructures your debt load — it does not eradicate it. In other words, you’ll still owe the money. Yes, you’ll feel a sense of relief because your burden will be lighter (if you do it right). However, the obligation will still be there. Make sure you can repay the loan before you agree to it.

Further, because all of your debts will have been repaid via the consolidation loan, you’ll be left holding a raft of credit accounts with zero balances. The temptation to use them will be great. If you decide to do so, without changing the spending habits or alleviating the situation that led to the need to consolidate in the first place, you will find yourself carrying even more debt.

Simply put, evaluating a debt consolidation company is simply the first step toward resolving your problem. You have to be careful to avoid digging an even deeper hole after you get the loan.

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