Incrementally paying down high-interest, unsecured debts, like credit cards, can become very expensive over time — as well as tack on extra months or years to the repayment process. Borrowers in this situation may find themselves wishing on a windfall so they can wipe out all those debts in one fell swoop, essentially allowing them to start over with a blank slate.
Along similar lines, a debt consolidation loan is designed to provide the funds needed to wipe out other debts right away. You are absolutely responsible for paying back every penny of the loan on schedule — whether you get it from a bank, an online lender or as part of a debt relief program. However, this strategy may be able to reduce the amount you end up paying in interest, as well as reducing the hassle of dealing with disorganized repayment.
The first step toward succeeding in debt consolidation is choosing the right lender with which to work and the right loan product from said company. Here are some tips for comparing debt consolidation companies.
Compare Consolidation Loan Interest Rate Offerings
You’ll notice there’s a large range of potential interest rates you could pay as you’re exploring your debt consolidation options. According to ValuePenguin, typical loans carry interest rates between roughly eight and 29 percent — although they can be lower or higher in some cases.
Besides variance between individual lenders, which factors can potentially influence these rates?
- Credit history/score: The primary factor lenders use to set interest rates is credit history, with a higher score securing more competitive rates.
- Type of loan: Consolidation loans are usually unsecured, which means no collateral is necessary. However, finding a secured loan is one way borrowers with weaker credit profiles can get approved and lower their interest rates.
- Debt-to-income ratio: Lenders compare the amount of money you make against how much you owe to determine your risk level. This, in turn, influences your interest rates.
When your goal is to find the best consolidation loan available, based on your circumstances and the lender you choose, shop around and get quotes from various companies before submitting an application. Compare loan lengths and fees in addition to interest rates as you conduct research.
Compare Consolidation Company Reputations
Another area to consider is the reputation of any potential lender. As much as we’d like to think every company is on the up-and-up, consolidation scams do target innocent borrowers looking for a way out of their debts.
Top-rated debt consolidation companies will have lots of online reviews from satisfied customers as well as third-party reviews speaking to their legitimacy and track records. Websites will be secure and informative — and the companies will be more than happy to provide all the information you need up front to make an informed decision, regardless of whether you enroll.
According to the Federal Trade Commission, it’s wise to avoid advance-fee loans where companies guarantee your approval if you pay them a sum up front. While some lenders do require an initial fee, no legitimate company will ever guarantee certain results like approval. This can actually be against the law. Reputable consolidation programs and lenders will be forthright about your approval chances, how your interest rates will be formulated and all other aspects of doing business with them.
Comparing debt consolidation companies is primarily a matter of considering a company’s reputation and offerings — with the intention of choosing a solid partner and selecting the most competitive product available to you. Evaluating companies on this basis will help you maximize your chances of coming out ahead.