Spotting Debt Consolidation Scams

Any offer of help can look good when you’re in financial trouble. However, you must be extra careful with money problems because predators are always sniffing around for opportunities.

Debt consolidation is a proven method of getting a number of outsized debts back in hand. While it usually takes the form of some sort of a loan, there are still a number of different ways to go about doing so. Familiarizing yourself with them will help you when it comes to spotting debt consolidation scams.

What Is Debt Consolidation?

Let’s say you have three outstanding obligations totaling $15,000. Your minimum payments on those accounts range from $50 to $100 monthly. Trying to pay them off individually by making minimum payments could take as long as 15 years each when you factor in interest payments.

Instead, rather than trying to chip away at them one by one, you can take out another loan — one large enough to encompass all of your existing ones — and use the proceeds to pay them off. This will leave you with one outstanding obligation and fewer interest charges.

Types of Debt Consolidation Loans

One of the most common tools is a personal loan. You borrow from a bank, a credit union, an online lender or even family and friends. Personal loans are usually secured only by your promise to repay them.

Home equity loans and lines of credit are secured by an interest in your house. If the value of your residence is considerably more than you owe on it, you can borrow against that value and use the money to satisfy your debts. The only problem here is if things go awry, you could be forced to sell your home.

Balance transfers involve moving all of your existing credit card debt onto another card with a limit high enough to hold them all. These offers typically come with a zero percent interest rate for a limited amount of time. You could achieve significant savings if you can pay it off before that window closes. However, you could find yourself paying a lot more if you don’t, as interest is typically calculated on the entire balance from the day you signed the agreement.

Whether debt consolidation is a smart move for you depends on a few factors, including your ability to repay the loan back over time and how much your interest charges will drop. You may need to seek out another option if you have a low credit score or more than $10,000 in debt — these Freedom Debt Relief reviews show some cases where another strategy like debt settlement turned out to be a better fit for people in a financial bind.

Avoiding Debt Consolidation Scams

1. Research is your best friend when it comes to spotting and avoiding debt consolidation scams. Make sure you thoroughly vet any lenders before entering into an agreement.

2. Consulting the Better Business Bureau for background information on an organization is helpful too. Look to see if any complaints have been filed against the company. Also check with the office of the attorney general in your state.

3. Always seek alternate lenders. It’s OK to listen to what a company’s representative has to say if you get an offer in the mail, by phone or see an ad online. However, consult other lenders before you agree to anything to see what kinds of offers you can get. Patterns will emerge and you’ll be able to see if that original offer is a good one.

4. Get all promises in writing and have someone with a legal and or financial background look over the agreement before you sign it.

Spotting debt consolidation scams is more readily accomplished when you’re familiar with the types of loans it entails and know what to look for in a reputable company. The advice above will help you tremendously in that regard.