3 Common Questions (And Answers) About Debt Consolidation
Consolidating debt is not a quick fix for years of over spending. It’s asking for help for a situation you got yourself into—usually over time, or because you had to take on a lot of debt for an emergency. Whatever the reason, individual high interest rates are no-doubt making it difficult for you to climb out from under the seemingly insurmountable issue. Too much debt is stressful and costs a lot in interest.
Debt consolidation companies are either: profit or nonprofit. Before you choose one do your homework.
If you choose a ‘for profit’ company, it will consolidate your debts, but it will still charge you interest-even though it will probably be lower than what you are paying. That said, the down side is that the payments will last longer and cost more in the long run. If you decide to hire a for profit company to consolidate your debts, there are several things to keep in mind before you sign a contract.
- Check with the Better Business Bureau to see if there have been any complaints.
- Read the reviews of the folks who have used the company.
- Read the fine print to make sure you understand how it works. Is the low interest rate they quote guaranteed?
- Are there any upfront fees? Upfront fees are usually illegal.
- Follow your gut instinct when you meet with the representative. How do you feel working with him or her? Did the representative answer all of your questions in a way that you understand them.
- What happens if you default on a payment? What are the penalties?
Or, check out a non-profit debt consolidation company. Non-profit companies such as Consumer Credit will not extend additional credit to you, so you will not owe more than you did in the beginning, however, they aren’t free. They charge nominal fees for set-up and maintenance and time for negotiating the terms of repayment with the companies you owe.
- What happens if you default?
- How much are the fees? Compare them with the interest rate you would be charged by a for-profit company.
Before consolidating look at your behavior and why you owe so much. Maybe you could manage your debt on your own by changing your spending behavior. Perhaps you can follow the popular plan of paying down the smallest debt first and applying that amount to the next one, and so on. There’s a good chance a company will work with you if you call them.