Debt Consolidation Services

What to look for in a debt consolidation company

Debt consolidation services help you escape creditor hassles by offering a solution that's in the best interests of both you and your creditors. The best of these companies provide debt solutions that help you end credit card and student loan payments years sooner than you would otherwise be able to.

However, not all debt consolidation programs are created equal, and you've got to be careful when choosing a service to sign up with. Choose incorrectly, and you'll wind up even deeper in debt, facing thousands of dollars in additional interest and many more months or years of payments.

Should I Consolidate My Debt?

If you're struggling to make payments on multiple debts, which may include credit cards, personal lines of credit, bank loans and student loans, you're a candidate for debt consolidation programs. However, it's vital that you understand the advantages and disadvantages of using debt consolidation services before you sign on the dotted line.

The advantages of using debt consolidation loans include lower interest rates and, over time, improved credit ratings. You also gain some negotiating power; for example, you might be able to get any student loans you've defaulted on included in your debt consolidation deal. However, keep in mind that failing to pay back any debt, even if such an arrangement has been negotiated, can adversely affect .

There are other disadvantages to consider as well. First, entering into debt consolidation programs generally nullifies any grace periods that may have been helping keep your payments manageable. These debts become eligible for repayment, which can increase your overall debt load. Also, there's often a trade-off of unsecured debt for secured debt. Basically, this means you'll have to pony up collateral to cover your consolidation loan, which you'll risk losing if you default. This might not be the best idea if all your current debt is not secured by collateral.

Features of a Reputable Debt Consolidation Company

There are several signposts you can use to differentiate a good debt consolidation company from a bad one. First, your debt consolidation quote should come at no cost or obligation. If you proceed with a certain company and their terms change when they move from the quote stage to the contract stage, walk away.

Compare terms and conditions closely. Online debt consolidation companies give you a fast and easy way to gauge current market rates, which you can use to negotiate a better deal. Also, money experts warn consumers to be wary of companies that promise to take care of everything for you. These businesses are usually just trying to get your signature on a contract before you've had a chance to review the fine print.

Finally, be wary of consolidation loans that come in the form of liquid money. Usually, these loans will have higher interest rates than your existing ones — it's not uncommon for these loans to charge upwards of 22 percent interest, a rate that certainly isn't going to help you become debt-free anytime soon.