Debt Consolidation Loans

Elizabeth Johnson

Financial Advisor
Updated: 12/2017

Have you made some financial decisions in the past that you are reaping the consequences today? Perhaps you opened a few credit cards for the holidays or perhaps opened a line of credit for your wedding and now, your finding it difficult to manage the multiple credit cards, lines of credit, and other monthly bills? Well, before you are quick to throw in the towel, it’s important to know that you are not alone. Thousands of people are in the same exact situation you are in. In fact, this is where there are debt relief programs – to bring relief for those in debt. With that being said, in today’s article, we are going to discuss one of the main debt relief programs that is available to consumers: debt consolidation. Not only will we explore the basics of debt consolidation, we will even provide share some tips and tricks to use when comparing debt consolidation loans and companies. By the end, you will be fully prepared to begin your own research.

What is Debt Consolidation

In the debt relief field, there are many different forms of relief; debt consolidation happens to be one of the most popular. As the name may imply, debt consolidation is the process where an individual opens a loan with a debt consolidation company that is then utilized to pay off all of their unsecured debt, or credit card and even medical bills. Debt consolidation is most often preferred by individuals with better than average credit score as they receive the maximum benefits from this debt relief program. We are talking about minimized interest rates, lower monthly payments, and eliminating debt in a quicker and more efficient manner. Now, given the popularity of debt consolidation in the debt relief field, there are dozens upon dozens of different debt consolidation companies and loans. In light of this, it’s important to do thorough research and ask the right questions to ensure you select the best possible loan and company for you.

Questions to Consider When Comparing Debt Consolidation Loans

With a better understanding of what debt consolidation is, before you are quick to pick just any debt consolidation loan, it’s important to ask the right questions when comparing different debt consolidation loans. This is the only way that you, a consumer, can ensure that a debt consolidation company is truthful, genuine, and placing your best interests first. Otherwise, you might just find yourself in more debt, regretting choosing this debt relief program. With that being said, we have crafted a few questions to help guide you along the way.

Is your credit score high enough to be approved for a debt consolidation loan?

Before you are quick to exploring any debt consolidation company, it’s important to know whether your credit score is high enough to be approved for a debt consolidation loan. Typically, credit card companies should offer a free credit score, which may be used as a gauge. You would not want to apply for a debt consolidation and take the hard inquiry on your credit report, just to find out that you have been denied. With that being said, some key characteristics that may hurt your chances of getting approved are: missed payments, late payments, or even multiple delinquencies. If your credit score is too low for debt consolidation loans, do not be discouraged. There are still other debt relief programs that may be suitable for you.

What is the specified introductory interest-rate and go-to interest rate?

Given the nature of this risky financial environment, it’s important to always take into consider the interest rates – both introductory and go-to. With debt consolidation loans, interest rates, in our opinion, are one of the biggest deciding factors. Reason being, the higher the interest rates, the longer the life expectancy of the loan, meaning more money out of your pocket. Now, if you have average credit and are approved for a debt consolidation loan, you may receive a higher interest rate because of your credit. This is why debt consolidation loans are best for individuals with good-to-excellent credit scores.

Are you enrolling in debt management rather than debt consolidation?

When we crafted this question, there was a direct intention behind it. In this industry, companies tend to market themselves in a certain manner; however, they are actually a different type of company. For example, there have been many cases of debt consolidation loans being marketed under debt consolidation; however, the company was in fact a debt management company. With that being said, take the time to investigate and understand exactly what type of company you are dealing with. Are they a credit counseling service? Are they only offering debt management plans? You should be able to clearly identify that the company is strictly for debt consolidation. If it’s challenging to discover, or you are finding customer reviews highlighting this problem, remove the company from your list. 

What are your debt relief alternatives?

Before you are quick to claim debt consolidation as the best debt relief solution for you – have you taken the time to investigate the other debt relief alternatives. For example, for some individuals, credit counseling may be a better choice than debt consolidation loans. Reason being, these are often cheaper than opening an entire new loan. At the same time, perhaps debt management is a better alternative where you can learn more specifics about debt relief and eliminating debt from the experts. A rule of thumb in the debt relief world is that individuals with a strong credit report and established credit score are better off with debt consolidation loans. However, as we have stated in multiple articles, debt consolidation is never a feasible option for secured loans, which includes your home. Please keep this in mind!

What is the loan’s term?

Another vital question that you should ask when comparing different debt consolidation loans is what is a specific loan’s term? In other words, what is the debt consolidation offering for a repayment period? If a debt consolidation company is only offering long-term debt consolidation loans, it’s important to weigh the costs and benefits. For example, a long-term loan could mean an extended loan life-expectancy and more money out of your pocket. With a short-term loan, an individual may capitalize on their new lower payments, if affordable, and eliminate their debt quicker. It truly depends on each individual case.

Is this company telling you the truth?

The trickiest question that stumbles many consumers is whether a debt consolidation company, or any debt relief company for this matter, is telling the whole truth. In fact, this is the biggest source of the negative connotations that surround the industry. With that being said, it’s important to be able to weed out the scam artists and highlight the success and reputable companies. With that being said, take the time to truly research the company, ask the valuable questions, and study their accreditations. Is the company available on search engines? Can you find their reputation on Better Business Bureau? Another clear indicator of a company that is money hungry or potential a scam is one that charges upfront fees, before any agreement has been established. In the digital age, through proper research, it should not be too hard to weed out the dishonest companies.

Is this company promising a quick-fix solution?

The quickest way to eliminate a loan from your list of potential debt consolidation loans is when companies are promising a quick-fix solution. This is one of the biggest false premises that surround the industry, and another major reason for the negative connotation that surrounds the industry. The truth is that there is never a quick-fix to debt relief. The nature of these loans are risky as it is, so to say that there is a quick-fix, is false advertising. On top of this, if a company is guaranteeing you anything – this is another red-flag to remove from your list.

Do they have any hidden rates or charges?

Another great question to consider when comparing different debt consolidation loans is whether the companies are hiding any rate or charges in their contracts. One of the best ways to learn or disclose this information is by asking for a sample contract or reading reviews from previous consumers. Since hidden fees and charges are such a sensitive topic to consumers, its one of the first areas of concern that is highlighted in a review. If you are finding, when cross-referencing a debt consolidation company, that there are many reviews discussing their rates and fees, perhaps it’s time to move on to the next company. The last thing that you want when seeking debt relief is more debt-creating circumstances.

Are the monthly payments an affordable plan – can you budget it?

This is a question that will require you and any other consumer to be honest and truthful with themselves. Can you truly handle the estimated monthly payments? Now, in our opinion, prior to even beginning the process of comparing debt consolidation loans, consumers should take the time to evaluate their personal finances and establish a budget based on their current circumstances. In doing so, when it comes to comparing debt consolidation loans, consumers will know EXACTLY how much they can handle paying each month. If you are seeking that certain debt consolidation loans might be a risk, don’t risk it. A rule of thumb from financial experts is that a debt consolidation loan should make your life easier. You should not feel stressed or struggle to make monthly payments for any of your bills, including priorities like groceries and gas.

How is the company’s customer service?

Another pertinent area to consider when comparing debt consolidation loans is how great a company’s customer service is. Now, through reviews themselves, you will be able to learn a lot about how great their customer service department is. However, we do also suggest taking the time to make a phone call to the company, visit a local branch, if possible, and even send an email to test the waters. We also suggest gauging the company’s customer service innovation and see if they offer online support through live chat systems or perhaps mobile applications. During the testing process, if you encounter individuals who are rude or disrespectful, perhaps that debt consolidation company is not a great fit.

Do you receive a personal specialist for your case?

In the debt relief industry, there are dozens upon dozens of companies claiming their right to being the best debt relief company. However, only the best of the best companies will offer their clients personalized service through a personal specialist dedicated to helping with their specific case. With this being said, if you want to evaluate and compare any debt consolidation loan, see how the company caters to your specific needs. Do they have a specialist that you can continue 24/7? Are they ready and willing to answer any and all of your questions? Do you have wait several minutes for a customer service representative? These are all important considerations to make when comparing debt consolidation loans.

Taking Debt Consolidation Loans Seriously

When it comes to taking control over and eliminating your debt, one of the best and most viable options that is available in the debt relief field for consumers is debt consolidation. It’s important to keep in mind that debt consolidation is most feasible for individuals with a strong credit report and established credit history. Furthermore, debt consolidation loans are something that should be taken seriously. Typically, many people who have experienced faults or significant drawbacks do so because of the lack of research or seriousness taken. It’s essential to thoroughly research the many different debt consolidation companies that exist and the loans that they offer. This is the only tried and proven way to ensure that your best interests are met. If you are truly passionate about eliminating debt and achieving financial freedom, then you will take extra precaution and ensuring that whatever decision you do make, it’s financially sound.