What You Need To Consider When Utilizing Debt Consolidation Services
Debt consolidation is the process of paying off multiple high interest loan with a single loan. Ideally, this larger all encompassing loan will have a lower interest rate, which can help reduce both the amount you are paying on a monthly basis as well as the time it takes to repay the entire balance. While this can be a powerful tool for the right applicants, there are many factors that need to be considered when trying to decide if consolidation is right for you.
Quality of the Agency
When looking for a reputable agency to assist you with debt consolidation, begin by looking through local non profit agencies. Trustworthy companies will be licenced through the state and belong to a national trade association. They should also be accredited by the Better Business Bureau. Reputable agencies will focus not only on getting you out of your immediate debt, but in teaching the necessary financial skills to remain debt free.
Be very wary if your consolidation service attempts to upsell you on extras such as insurance or other investments. Their primary focus should be on helping you work your way out of debt, not obtaining a commission. Other red flags include requiring upfront fees, or making too good to be true promises, especially before they review your financial situation.
Watch Out For Small Print
Ideally, when you take out a debt consolidation loan, you are able to restructure your plan to include a reduced interest amount which results in a smaller overall repayment amount. Many unscrupulous lenders work to keep your focus only on lowering monthly payments, but will do so by extending the length of the loan. A smaller monthly payment may sound attractive, but in many of these deals, only a very small amount of your payment actually goes towards paying off the principal balance.
What Happens Next?
Once you are able to secure a low interest debt consolidation loan through a reputable agency, what will you change to ensure you do not fall back into debt? For many, a consolidation loan can feel like a clean slate. Credit cards that were once maxed out are back to a zero balance, and because of the reduction in monthly payments, your cash flow has suddenly increased. It is easy to fall back into old habits, which will lead you right back to where you started. Just because the debt has shifted, it hasn’t disappeared.