Taking Care to Avoid Debt Consolidation Scams

Any time you have a significant group of people with a problem to solve, you will have honest problem solvers and those who like to exploit the situation. The same holds true for the debt consolidation loan industry. There are those who sincerely want you to get a lower interest loan and then there are those who have to put the hard sell on you to convince you they are the solution to your problems. What are some of the areas you should avoid when shopping for a debt consolidation loan? Let’s look at a few:

Watch out for loans where the fees are set too low. Extremely low fees can be an indication that there could be hidden fees elsewhere. Remember that a reputable company that offers debt consolidation loans will go through the proper qualification procedures for their borrowers with acceptable market fees.

Take the time to figure out if just paying off your cards is better. Don’t let anyone push a debt consolidation loan on you without first calculating how long payoff would take if you raise your monthly payments by a certain amount.

Avoid any company offering you a debt consolidation loan who promises to fix your credit too. This is because only you can fix your credit and the single most effective way to fix your credit is to get back into regular payment habits on your open accounts after you get a loan from a reputable company.

Check out a company offering a debt consolidation loan with the Better Business Bureau. Don’t just look at the complaints either. Look to see if complaints were resolved. While a complaint history with the Better Business Bureau is not necessarily a bad indication, it should give you cause to check further. Remember that you don’t know the entire story behind any complaint.

Don’t pay a business to secure a loan. This is kind of like paying an agency to find you a job. Consider that there is a good chance that if you have a regular steady job and your credit is good that you will qualify for a debt consolidation loan at a good interest rate. This is because your home is the security backing your loan.

Debt consolidation loans do not always come in the form of a home equity loan. Sometimes credit card companies will offer a credit line of $100,000 to consolidate your debt—at least that’s what the junk mail ad says. Realistically, no one is going to loan a person with high unsecured credit card balances that kind of money without collateral like a home. Some use the 0% introductory balance transfer option on a new credit card to consolidate other credit card debt and get a break on interest. But you need to have a perfect payment record from then on or else that card may switch to the default interest rate. Life is never that perfect.