Personal Debt Consolidation Loans

How to Consolidate Debt - Best Company and Options

Jul 8, 2009 Fleur Hupston

Personal debt consolidation loans may be a good choice for those desperate to get out of debt. However, consolidation companies are springing up everywhere.

In order to effectively manage personal debt after consolidation, a considerable amount of self-discipline is required, especially for those who have run up a lot of debt and not changed their mindset regarding spending on credit.

Debt Consolidation – Is it for Everyone?

Consolidating debt into one loan with a lower payment and at a lower interest rate seems a very tempting option; indeed, it can work well provided the individual concerned does not give in to the habit of running up debt again on the credit cards that have just been cleared.

Some debt consolidation companies show that over 75% of the time, after an individual has consolidated his or her credit card debt, the debt grows back.

Getting into a situation of unmanageable debt is a symptom that needs to be addressed by a counselor and spending habits must be changed in order to stay debt free.

How Do Debt Consolidation Companies Make Money?

Care needs to be exercised in the choice of a debt consolidation company. Many of them claim to be non-profit, attracting customers in this way, but they still make a lot of money.

Some debt consolidation companies charge a percentage of the payments made to the lenders, some keep the first one or two payments for 'admin expenses,' still others will pocket an entire first payment or collect 10% of payments as a continuing contribution. Some unscrupulous representatives may not even disclose the fees and charges involved, so be sure to read the fine print of any contract carefully before signing.

Remember too, that although loan payments may seem to be much lower on a monthly basis when the proposal is made, the term of the loan may have been extended, meaning that one may well be paying more in the long run.

Finding the Best Debt Consolidation Company

Take the time to research a debt consolidation company or agency carefully, do not simply respond to a TV ad. Find out which companies have had complaints lodged against them.
Watch out for companies that only offer a debt management plan, without other options such as budget counseling or other debt education options.
Watch out for high fees and charges. Some debt consolidation companies publicly claim that their fees are voluntary, but don't pass this information on to consumers. Others will say that their fees are voluntary, but will put a lot of pressure on one to pay the full fee.
Pressure tactics – stay away from companies with aggressive telemarketing pitches, where the person at the other end of the line seems to be reading from a script and aggressively pushing a 'debt savings plan' or possible consolidation.

Many people have made the mistake of getting into debt by having an overly extravagant lifestyle on their credit cards. It will take time, effort and personal commitment to get out of the mess, but think ahead to a time where there is no credit card debt, no house or car repayments and best of all – no stress!

A debt management plan can greatly assist those struggling with a debt burden. The article What is a Debt Management Plan? examines the pros and cons of going this route. The article Help to Avoid Overspending offers a free downloadable budget spreadsheet which can make budgeting easier, especially during holiday seasons when spending can get out of hand. How to Repair a Bad Credit Score gives some practical suggestions on the best way of improving rating.

Source:

Consumer Federation of America – Study of Credit Counseling, Deanne Loonin, April 9, 2003.

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Debt Consolidation Can Help Struggling Consumers