How to Choose a Debt Consolidation Firm: Four Things to Consider

If you are concerned about your ability to pay back all your debts and you are thinking about working with a debt consolidation firm, consider these four things before you pick one to work with.

1. Need. Before you start looking for a debt consolidation firm, honestly assess your current financial situation. You may be able to do some things to improve your finances on your own. Carefully review your living expenses to see if any can be reduced or cut to make more money available for paying down your debts. If you don’t have a budget, create one and see if sticking to it provides more money to go toward debt repayment. Consider ways of increasing your income, if only temporarily, to let you make more than minimum payments each month. Homeowners with equity in their homes may be able to get a home equity loan to pay off their other debts and then just pay off their new loan with its lower interest rate. If this is more than you feel capable of doing, you can ask someone for help. While a friend can assist you, it’s better to find a financial professional to help you assess your situation. You may qualify for a low-fee or free session at a local non-profit organization that helps people manage their money and debt wisely.  See also Christian Debt Counseling

2. Reputation. Once you’ve determined that you need to work with a debt consolidation firm, start asking around for referrals. Check online for ratings and complaints, especially unresolved ones, from websites like the Better Business Bureau. Other sites provide reviews of various firms that can help you determine which companies are legitimate and have quality service records. It’s best to get personal referrals from someone who has worked with the company and had a good experience if you can. Be sure to ask for details to help you know if it would also be a good fit for you.

3. Services. Unless you know exactly what you want, a company with a wide range of services will be more likely to have those that will best help you. Ideally, you want a plan tailored specifically for your unique situation that will have you debt-free as soon as possible on terms that are easy for you to follow. Ask whether they offer debt management and settlement plans in addition to consolidation loans? A consolidation loan is used to pay off the current debt and then payment is made on the new loan each month. This saves money because the interest rate is typically lower on the new loan than it was on the other debts. It also eliminates late fees, penalties and other fees typical of credit cards that can be especially hard to avoid when handling so many different debts. Debt management and settlement plans collect monthly payments into one account and then use that to pay creditors based on a set schedule. Sometimes with these plans, the firm is able to negotiate lower interest rates or reduce the total owed by asking a creditor to accept a lower amount but consider the debt paid-in-full. This often requires you to be behind in your payments, which affects your credit and may not always be the best way to go. You may or may not want to participate in financial and credit counseling and education programs. Some companies may require this as part of their plan and others may not even offer these services. Be sure to ask ahead of time so you know whether the company’s offerings seem like a good fit for your needs.

4. Cost. Many debt consolidation firms charge a fee or several fees for their various services. Some provide commission or bonuses to their employees for steering you to particular programs. You want to avoid these companies so you can pick what is best for you. Some may charge significant fees even if they don’t save you any money. In general, non-profit agencies have lower fees (sometimes no fees for certain services) than for-profit companies. They may have additional requirements or other restraints that you will need to consider, but they generally mean less money toward their fees and more toward paying off your debt.