Debt Consolidation Companies: What You Need to Know

When you’re in debt and can feel yourself sinking under the weight of too many minimum payments, it can cause you to become a little (or a lot) desperate. You need to get out from under all the payments, but have no real idea how to do anything but tighten your belt and reduce your spending. There are a lot of ways to reduce your debt legitimately, but there are also a lot of less than legitimate companies out there that prey upon that desperation to sell you services that are illegal or that simply don’t work. It can be hard to tell the black hats from the white hats in this, but one of the ways that many people turn to are debt consolidation companies.

What is Debt Consolidation?

Debt consolidation is where a debtor contracts with a third party for a loan that pays off all outstanding balances on credit cards, student loans, car payments, and the like. The amounts vary, but in general these loans are offered for $2,500 to as much as $20,000 or $30,000. This just means swapping a whole lot of smaller debts for one big debt, and different interest rates for one rate and a lower payment. Very often, debt consolidation is accompanied by credit and financial counseling. What debt counseling is not is bankruptcy, though lenders might look at it unfavorably as a sign that you are not in control of your spending.

Who Offers Debt Consolidation Loans?

You can find these loans at your regular financial institution, or there are specialty lenders either for-profit or non-profit companies that offer them, too. The thing is that even the non-profit debt consolidation entities have to make some money to stay in business, this is not at all an altruistic thing, but something that has grown out of consumers’ financial illiteracy and credit cards targeted to low-income people and credit novices. These loans are often marketed to the same demographic as the subprime cards, payday loans, and car title loans that got them in trouble in the first place.

What Should I Look Out For?

The first thing you should look out for is reviews or complaints about the loan provider online. Some people will complain no matter what, but when a good number of people complain about the same thing, you need to give those complaints some weight. Many of these companies offer low interest rates, but these are either teaser rates to bring in customers or rates that expire after a short amount of time. You may have extra fees either on the “front end” of the loan such as application fees and other such as “loan origination fee” and others. You may also find still more fees that are added onto your monthly payment that will raise it from affordable to an amount that will have you asking why you thought this was a good idea.

Before you sign on for a loan like this, come in and see what we can do for you at Van Horn Law Group, and if you opt for a loan, we can help make sure that it’s from a reputable company.