You’ve decided on debt consolidation to help you with your credit card obligations, but what do you know about the financial strategy? That knowledge is key to knowing what you should ask a debt consolidation company before hiring it to help you. Read on for more.
What is Debt Consolidation?
Typically, it means rolling your unsecured debts – usually from credit cards – into a single payment, either through a personal loan or a balance transfer card. The idea is to save money through a better interest rate, and to streamline bill paying. Instead of multiple monthly bills of various amounts and due dates, you’ll have just one to keep track of.
How Does Bill Consolidation Work?
Consolidation loans, which are personal loans, are available through banks, credit unions and online lenders. Because of the way they’re structured, credit unions usually are more lenient, in terms of eligibility. You’d first have to join one, of course. If you have a good relationship with your bank, try there too. The good thing about online lenders is that most will give you an idea of what kind of interest rate you’re eligible for through a “soft” credit check that doesn’t ding your score.
Keep in mind that for any of these sources, you will need at least good credit. Also note that if you do not qualify for an interest rate that’s lower than the one you currently have in the aggregate, consolidation isn’t worth it. The best consolidated credit services – www. freedomdebtrelief.com – are poised to help.
You’ll also need a good score to nab what’s called a balance transfer card. Credit card companies regularly issue such cards which offer zero percent interest for a promotional period. If you can qualify, you can shift your higher-interest plastic onto the new card. Just be sure you can pay the new loan off before the promotional period closes and the old rate is again effective.
If you have other kinds of unsecured debt and it’s gotten out of hand, you may need what’s called a debt management plan (DMP).
What Kinds of Debts Does Consolidation Handle?
Mostly unsecured debt, that is, debt that isn’t linked to collateral such as a house or car. In addition to credit cards, common unsecured debts are medical bills and personal loans.
What Should I Ask a Debt Consolidation Company?
If you don’t apply, or aren’t eligible for, a debt consolidation loan or a balance transfer card, a debt consolidation entity such as a nonprofit credit counseling agency can help you with a DMP, which can usually eliminate your debt in three to five years.
With this plan, you don’t take out a new loan. However, you will make just one monthly payment to the agency, which will then be allocated to your creditors. But first, here’s what to ask:
- Find out whether the company charges, and how much. Nonprofit status notwithstanding, some agencies have setup and monthly fees. These fees can quickly add up.
- Also ask potential agencies about accreditation. Reputable companies are members of the National Foundation for Credit Counseling. You should also go online to read testimonials and to see whether there have been complaints.
- In addition, inquire as to whether representatives are being paid a commission. If they are, you might want to look more into their claims before signing on.
- While you’re at it, find out how long the company has been in business and whether they’re licensed to do business in your state.
What should you ask a debt consolidation company? Now you know, along with some fundamentals about the financial strategy. Knowledge is power. You can now move forward with confidence.