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How To Find a Reputable Debt Consolidation Company

If your debt feels like it's weighing you down, and you're constantly stressed out about how much money you owe in loans or on your credit card, it's natural to want to run to debt consolidation. It can help you save on interest, and you'll have just one loan making it easier to stick to a realistic short-term plan to get out of debt. But entering into a debt consolidation agreement is not a decision to take lightly.

After all, not all debt consolidation companies are all created equal, and, most of the time, a "quick fix" to get you out of debt is simply too good to be true. You'll end up in a worse financial situation than you were in before if your debt ends up in the wrong hands. If you're seriously considering turning to a debt consolidation company, don't get tricked into costly scams.

What is debt consolidation?

To get started, you need to understand exactly what debt consolidation means for you and your debt or loans. Before you take a look at your options for debt consolidation companies, make sure you clarify what exactly you're looking for. Terms like "debt management" or "debt settlement" are NOT the same as "debt consolidation."

  • Debt consolidation is when one company pays for all your debt or different loans and then offers you one loan that you pay back to them. This often allows you to get a lower interest rate than you were paying before. You'll also simplify your finances since you'll only be paying one monthly payment.
  • In contrast, Debt management is when a third-party tries to negotiate with your lending company to lower your interest rates and monthly payments.
  • Debt settlement is when a third-party tries to negotiate with your lending company to lower your principal balance.

You'll find a lot of companies advertise as though debt consolidation, debt management, and debt settlement are all the same thing. True, they are all ways to refinance your debt, but they are VERY different in how they affect your credit and long-term finances. Debt management and debt settlement are extremely risky and have debilitating effects on your credit score.

Debt consolidation has its own set of risks, but you're essentially still in control. It's up to you to make payments every month to avoid penalties and an increase in interest rate. Once you understand what debt consolidation really means, you can move forward to consider how you can consolidate your debt.

There are many different ways to pursue debt consolidation, and many of them don't require a debt consolidation company. If you have a good credit score, you might not need help from a debt consolidation company. To read more about these options, visit our previous post, "Debt Consolidation Programs."

If your credit score is below 660, "do it yourself" debt consolidation won't be an option for you, and you'll need to begin a serious search for reputable debt consolidation companies. Below, we'll explain how to avoid scams and ensure that you move forward with a trustworthy debt consolidation company that offers reasonable terms.

Tips for Finding a Reputable Debt Consolidation Company

Finding a reputable debt consolidation company is easier said than done. Creative marketing and advertising can easily misinterpret the true intentions for debt consolidation companies. There are plenty of predatory companies out there looking to take advantage of people in vulnerable and desperate situations. ReadyForZero has vetted all the partners in our debt consolidation tool, so you can rely on using our trusted partners.

However, there are a few things you can also do to quickly determine whether any other companies are credible. When you have a list of debt consolidation companies that seem like good options, start a thorough search online by following these steps.

  1. Check the Better Business Bureau (BBB): Type the name of the company into the website of The Better Business Bureau to find out whether the company is BBB accredited. You can also find information about the complains made by consumers or even court cases brought against the company. For example, in a quick search of debt relief companies in Los Angeles, only one of the 14 companies was accredited. It had a rating of A+ and 16 reviews that demonstrates the credibility of the company. Unaccredited companies also have ratings and customer reviews, and, of those that were rated, many had F+ or C ratings.
  2. Are they registered?: Any reputable debt consolidation company will be concerned about their reputation and would register with the The Association of Independent Consumer Credit Counseling Agencies or The National Foundation of Credit Counseling. Check to see if your companies are registered and make note of any feedback given on the company and practices.
  3. Consider going to a nonprofit: Nonprofits still charge for their services to keep business running, so compare their fees to for-profit companies to make sure you are getting the best deal. And also keep in mind that not all advertised nonprofit companies are reputable. It’s easy for supposed nonprofit companies to appeal to your personal sensibilities with savvy marketing and advertising on their websites. Be sure to ask to see their 501(c)(3) certificate that proves their nonprofit status. Some companies might also claim affiliation with a certain religious faith to more easily gain your trust. As terrible as it is, many of these companies are doing whatever they can to manipulate you into buying their services.

Find your debt consolidation partner.

Red Flags: How to Avoid Scams

Once you’ve identified the list of companies that seem legitimate based on your online research, it’s time to go and get to know the companies firsthand. Interacting with their representatives will reveal a lot about the legitimacy and reliability of a company and how they handle business. It’s difficult to guarantee that a company is reputable, but you can easily avoid major scams by keeping an eye out for these red flags.

  • They tell you it's a "quick fix." There is no quick and easy way to get out of debt. Anyone or any company that tells you that getting out of debt is quick and painless is simply lying to you. It takes time, but requires your true dedication and diligence.
  • They're pushy or aggressive. Taking on a loan is a really big decision. Similar to buying a car or a house, you should shop around for the best deal and not feel pressured. Any company or person that gives you a one or two-day deadline is just trying to make a sale. They don’t have your best interest in mind if they are pushing you to make a quick decision.
  • You feel uncomfortable in ANY way. You can’t turn back once you’ve decided to enter into a debt consolidation agreement, so make sure you’ve taken the time to research your options. You should feel comfortable with the company you’ve chosen. Make sure customer service has been responsive to your concerns and that any questions you have are answered before you make your decision. Without a supportive, responsive, and responsible debt consolidation company, you’ll simply be more stressed, more in debt, and in a worse situation than before.

Make Sure Debt Consolidation is Right For You

There’s no point in entering into debt consolidation if it just makes you go into further debt. The decision of whether debt consolidation works for you really comes down to the numbers. Crunch your numbers to determine whether it makes financial sense for you to turn to debt consolidation. Any debt consolidation company is going to charge you a fee, so you need to consider what impact these fees will have on your finances. Here are the numbers to pay attention to:

  • Upfront Fees: Not all debt consolidation companies have an upfront fee since they already make money off the interest you pay on the loan, but some do charge upfront fees that you need to calculate into your cost for the loan.
  • Interest Rates: Your debt consolidation company should be offering you a lower interest rate than what you are currently paying on one or more of your current loans.
  • Term: But how long is your term? If the interest rate is low and your upfront fee is also low or 0, does it really matter if the term is twice as long? In the end, you might be paying more than you were before!

Add it all up!

  • Add up any upfront fees to the amount of interest you will be paying over the whole term of the debt consolidation loan.
  • Then, add up the amount of interest you are paying on your CURRENT loans in the same amount of time.
  • Which one ends up being higher? Is it your current debt as is, or is it the new debt consolidation loan?

If your new debt consolidation loan will cost you more money in the long run, it doesn't make sense to enter into a debt consolidation agreement. You might be tempted because your monthly payments might be lower, but you should only resort to it if you really can't pay your bills every month. Otherwise, you're just paying even more money in the long run. For more consideration on whether or not you should consolidate your debt, check out our previous post, "Is Debt Consolidation A Good Idea?"

Finding a reputable debt consolidation company isn’t the easiest process, but it is an incredibly important step if you’re thinking about debt consolidation as a path toward living debt-free with financial freedom. Choosing a reputable debt consolidation company can help you save and get out of debt faster, but trusting the wrong company could potentially lead you down a disastrous path with no turning back. Don’t let a sales pitch or smart marketing dissuade you from taking the time to thoroughly research all your options.

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