A quick internet search will bring up a huge list of companies who provide debt consolidation loans and solutions.
But what exactly do these companies do, why might you want to use one, and how can you ensure you choose the right one?
What is debt consolidation?
Debt consolidation is a way to make managing your debts easier. In essence, you take out one larger loan, in order to pay off your smaller various debts.
These might be credit cards, store cards, personal loans, medical bills, utility bills or other forms of debt.
Individuals take out debt consolidation loans to secure a lower average interest rate, lower monthly repayment, or both.
With only one periodic repayment to make, it’s a more straightforward way to keep on top of making regular, on time repayments to your debt.
Types of debt consolidation companies
There are so many debt consolidation companies out there, and they aren’t all the same.
Some are for-profit, others are non-profit. They differ in the types of debt relief solutions they offer, and the way their fees are structured.
Read on for the services you want to look for when choosing a debt consolidation company to help you.
What can a debt consolidation company do to help you?
A reputable and accredited debt consolidation loan should offer the following services to you:
Review of your personal situation: Everyone’s financial situation is unique, and you’ll therefore have different needs when it comes to debt consolidation, than the next person. In order to provide you with accurate advice, your personal situation will need to be reviewed closely.
Financial advice about your options: You’ll be provided with the debt relief solutions that are available to you. You’ll discuss what can save you the most money, and what may suit your situation best.
A plan to consolidate your debts: Whether you decide to take out a debt consolidation loan (and there are a few types), or it’s best to obtain a Debt Agreement or declare bankruptcy, you’ll be shown how these solutions will help you get out of debt.
You’ll discuss your income, budget, and what you can reasonably afford to repay each month.
Negotiation with your current creditors: The debt consolidation company will contact your current creditors to negotiate the terms of your current debts.
Negotiate a better deal for you: The next step for your debt consolidation company is to find the best terms for your debt consolidation plan.
For a debt consolidation loan, this is a discussion about the interest rate you will pay, the monthly repayments and the length of your loan.
A repayment plan: This will put the above negotiations onto paper so that you can easily see the terms of your consolidation loan, including which day of the month your repayment will be deducted, and when the loan will be repaid in full.
It will also list the fees associated with your loan, such as late fees for not making repayments on time.
Help for you to manage your obligations into the future: A reputable debt consolidation company understands that a consolidation loan isn’t a complete debt relief solution.
While it may help you repay your current debt, in order to not go down the debt cycle again, you need to address your spending habits.
Debt consolidation companies can provide a range of general financial advice and education, including information on budgeting, improving your credit rating and more.
Choosing the right debt consolidation company
Seek personal recommendations from friends, look for transparency in how the companies practice business and choose an accredited debt consolidation company to ensure that you put yourself and your finances into the best hands.