There are several ways to consolidate debt. But there are countless companies out there who want to consolidate it for you. Knowing how these organizations work can help you choose the right debt consolidation company.
What Are the Different Kinds of Consolidation?
In order to understand how debt consolidation companies work, you should first learn all the different types of debt consolidation. The most common types, balance transfers and consolidation loans, are offered by a wide range of organizations.
Balance transfers are generally used for credit card and other similar types of high-interest loans. You can apply for a credit card balance transfer through a card provider or a specialized debt relief organization. There are a few things about balance transfers that make them a particularly intriguing type of consolidation.
To start, credit card balance transfers typically come with an introductory low interest rate to entice applicants. These can be as low as zero percent, and last as long as 18 months. It can be hugely advantageous to have your interest rate dramatically lowered for such a significant period of time, and it makes balance transfers an ideal way for people with a plan to get out of debt faster.
There are, of course, some drawbacks as well. You'll have to pay a transfer fee, which typically runs in the range of three to five percent of the balance. Furthermore, there are often pretty strict regulations about missing payments. Missing just one can lead to losing the introductory interest rate, essentially negating any benefits of the transfer.
Consolidation loans are a more flexible option, and are offered by a wider range of organizations. There are positive and negative aspects to both of these points. Getting a consolidation loan can be helpful if you have an array of debts you want to combine. In addition to credit cards, other debts such as medical bills, student loans, and personal loans can also be rolled into a consolidation loan.
It's important that you take the time to read the fine print though. The whole point of a consolidation loan is to lower your overall interest payment, while also simplifying the repayment process. Don't agree to a loan if you're not seeing a material difference in your net interest payments.
What Companies Offer Debt Consolidation?
Now that you know more about the two most common kinds of debt consolidation, it's time to investigate how these companies work. Most debt consolidation and credit card companies are very much focused on profits. The good ones are able to make money while still providing legitimate services to consumers. Looking at top-rated debt consolidation companies can give you an idea of some of the more trusted names.
Not all companies are going to be straightforward with you. One common theme is companies say they're consolidating your debt, but sneakily sign you up for debt settlement, which is a much different process. Reliable organizations will have solid online reviews and will be honest when answering your questions.
What to Know When Choosing a Debt Consolidation Company
There are some standard things that are either right or wrong about debt consolidation companies. If you pick up on any of these red flags, it's best to just move on to another option:
A company guarantees you'll get out of debt. No one can do this, as it's your responsibility to pay your bills. Anything like a guarantee is a sure sign something is off.
They ask for payment before providing services. When it comes to consolidation, you might have to pay a balance transfer fee or loan initiation fee before receiving services, but that's it. You shouldn't be charged for anything else until the company has actually provided you some material services.
Look for accreditation. There are lots of people out there pretending to be legitimate debt consolidation services. Having accreditation goes a long way in weeding these out from real sources.
Debt consolidation can work well for consumers who want to beat debt once and for all. But it's essential to do some research into these companies before you sign up for their services.
