The following is a guest post….
In the hands of reputable professionals, loan consolidation is a viable solution to resolve debt. The goal is to move the entire amount owed into one lump sum at one interest rate. The Consolidation company accepts monthly payments and distributes the money to all the creditors involved. Through the negotiation process these entities will have agreed to the terms of the consolidation, and the debt will no longer grow under a burden of fees and high interest rates.
The major consequence of a loan consolidation is the extension of the life of the debt to get a lower interest rate. This does mean that in the end, the consumer pays more, but he can now work with a single monthly payment that can be figured into a budget rather than struggling to meet multiple payments and falling farther and farther behind. (Additionally, the consolidation will appear on the individual’s credit report and may hamper attempts to get future credit for as long as seven years.)
Warning Signs of Dishonest Debt Consolidation Scams
The biggest pitfall of the consolidation process has nothing to do with the procedure and everything to do with the honesty of the company involved. The loan consolidation industry is rife with scams. Consumers who are struggling with debt are likely both depressed and desperate. They are ripe targets for promises of debt resolution in “X Easy Steps!” and not yet willing to accept that there are no magic cures.
There are some definite warning signs that a consolidation offer may be a scam. Be on the alertfor any of the following:
1. Anything that feels like a strong arm or high pressure tactic.
2. A cursory examination of the facts of the individual case without developing a plan tailored to address the specific debts involved.
3. Any offer of a “fixed” solution to existing debt. All consolidation plans must be individuallytailored to be successful.
4. Failure to provide proof that the creditors have actually accepted the terms of the consolidation. Ask to see these agreements and do not pay the consolidation any money until they have produced the documents.
5. No mechanism to prove that the payments have been distributed to the creditors as per the terms of the agreement. The consolidation company should be able to clearly illustrate the money “trail.”
6. A reluctance to provide a full schedule of all fees involved in the consolidation agreement.Anything termed a “voluntary fee” is a clear warning sign that something is not right.
How to Look for Reputable Debt Resolution
In looking for a company to negotiate a debt consolidation always:
1. Thoroughly research the company including its reputation with the Better Business Bureau..
2. Select a company that offers a range of potential solutions and clearly indicates the final agreement will be tailored to the specifics of the individual’s obligations.
3. Work with a company that assigns a primary consolidation specialist to the case. This isessential for the process to move forward with clarity and efficiency.
4. Pick the company that describes the consolidation process in the most realistic terms. Most Debt consolidations take 3-5 years to complete, not six months.
5. Consider a company that offers consumer education and financial counseling. Learning moreabout personal finance is the consumer’s best bet to avoid repeating past mistakes.
6. Opt for a company with a good customer support department in case problems or issues arise.
Although there are certainly crooks in the debt and loan consolidation business, there are also honest companies that do an excellent job of helping consumers erase crippling debt. The process does work, but it should never be entered into lightly — do the homework first and accept that there are no safe short cuts.