How To Choose The Right Debt Consolidation Loan
Debt consolidation companies are using various ways to get people to sign up with them. Most of these companies are scams. You can reduce the chance of signing up with the wrong company by doing research. The following are five factors you should consider when looking for a debt consolidation company.
1. Upfront Fee
The first thing you need to consider is the upfront fee. Most debt consolidation services don’t collect an upfront fee because they make money from the interests. If the company charge an upfront fee, you should avoid them. You can ask the company about the procedure they use to negotiate smaller amounts and how they assess the fees.
2. Compare Interest Rates
You should always do research and compare the interest rates between different debt consolidation companies. Lower interest rate means more money from the payment will be used to pay the loan principle. This will speed up the time you need to repay your loan. Ideally, you should find a company that offers an interest rate that is lower than the interest rates of your credit cards.
3. Loan Term
Besides the interest rate, you must consider the duration of the consolidation loan. The term of the loan is important even if the interest rate is low. If the loan term is too long, you will end up paying more.
4. Compare the New Loan with Your Current Loan
You can calculate whether the loans will help you to save money by adding the upfront fee, and interest for the entire term. Afterwards, you must add up the total interest fee you are currently paying for your loans. For comparison, you must minus these two amounts. This allows you to determine whether the current debt or the new debt is more expensive. Most of the time, the debt consolidation loan will cost you more in the long term. However, going for this option helps if you are having difficulties to pay your bills every month.
5. Reputation of the Debt Consolidation Company
It is important to always sign up with a reputable debt consolidation company. You can check if the company have any consumer complaint by searching the online database of the State Attorney General and Consumer Protection Agency. The company should be bonded. To find out when the debt consolidation company is established, you can check for the formation date at the website of the Better Business Bureau.
In conclusion, finding a good debt consolidation company doesn’t have to be hard. To avoid getting scammed, you must be willing to do some research. If you have any question, you can contact the debt consolidation company’s representative and ask for more information.