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How to choose a good debt consolidation company

Having various sources of debt

If you are in debt and have multiple loans, there are some important factors you should bear in mind when deciding how to deal with them. One option is debt consolidation loan. The source of your debt may be a payday loan, residential mortgage, car loan, student loan, among others. Let’s consider the mortgage option. Even with the recent equity erosion in the housing market, you may still have high equity built in your property and should be able to either repay some or all your credit card debt or possibly get a lower interest rate. Of course, there are other factors that may affect your eligibility such as current FICO credit scores, income and other installment debt.

Bigger banks offer various programs and if they cannot offer you the terms you need, you could try consulting an established mortgage broker who has access to less restrictive and are more helpful towards your funding goals.

There is another option but you should consider it only as a last resort. This is debt consolidation loan provided by a debt consolidation agency. You should avoid it because in most cases, it will negatively affect your personal credit. This is due to the fact that debt consolidation firms buy your debt for less than you owe which will leave a mark on your credit report. It is also possible to lose credit score points because not all credit cards may get paid off on time which may lead to having late payments posted.

Debt consolidation loans

Debt consolidation loan is, indeed, a possible solution when you have become financially overburdened with credit card or other debts. The process of debt consolidation means taking out a new personal loan that combines a number of your outstanding debts. The purpose of the new loan is to let you pay off the consolidated debts with having only a single repayment amount to manage every month.

choose good debt consolidation company
choose good debt consolidation company

The benefit of debt consolidation loans is that the new single monthly repayment on the consolidated debt is usually significantly lower than the combined monthly payments that were needed to service the previously unmanageable debts. The new loan is usually made at a lower interest rate than the average interest of the previous ones combined. However, all customers are advised to exercise caution and due diligence when considering a debt consolidation company. On the market, there are debt consolidation services that indeed offer lower monthly payments and interest rates. However, at the end of the day, they may turn out to cost you more money as the loan term is extended for a longer period of time.

You should choose your debt consolidation company wisely. Go for the one with a better reputation and with better terms. Reputable debt consolidation companies negotiate with creditors to lower the total amount of debt owed even before putting together a debt consolidation loan rather than only providing a new consolidation loan to cover the existing debt. That way, they manage to provide genuine, substantial savings for the indebted customer.

Based on reviews from various consumer websites, these are the attributes which reputable debt consolidation companies have:

According to number of sites and articles that review debt consolidation companies, the highest ranking company has an A+ rating from the Better Business Bureau (BBB) and is accredited by the BBB, the American Fair Credit Council (AFCC) and the International Association of Professional Debt Arbitrators (IAPDA). This company is recommended because of its high level of transparency. It is transparent about its fees which the consumer is expected to pay which is 18 to 25%. The average debt reduction savings realized are also transparent — a net 30% after deducting the company’s fees. Unlike many debt settlement or debt consolidation companies, this particular lender can help both business and personal debt. Their debt settlement plans are designed to retire debt within a time frame of two to four years. The minimum level of debt required to qualify for their program is $7,500. They operate in 41 states.

A+ rating from the Better Business Bureau (BBB)
A+ rating from the Better Business Bureau (BBB)

The second ranking company offers a level of average net debt savings at 40% while their average fee is 20%. They also offer to consolidate both personal and business loans with a minimum debt requirement of $7,500. They sometimes work with customers with as little as $5,000 of debt, so it’s a good option to explore if you have lower debt levels. It is accredited by the AFCC and the IAPDA, but not by the BBB. It has an A+ BBB rating. Their website is consumer-friendly and provides an online customer service chat feature for those who may wish to ask questions online before making further inquiries with the company. Their debt retirement plans are also designed for a two- to four-year time period and are available in 38 states.

The third highest rated company has no minimum debt level requirement and their average fees range between 14 and 20%, which is approximately 5% lower than the average fee of most other high-rated debt relief services companies. They offer services in 42 states. Their services include personal and business debt consolidation plans with a time frame of 3 to 4 years. They are accredited by the BBB(A+ rating) and the IAPDA. Their website is transparent and easy to use.

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