Nearly everyone has had at least one unfortunate experience of falling behind on debt repayment. Maybe you got laid off from your job. Maybe you or your spouse got sick. Or maybe you suffered a fire, a storm, or a ruinous cyberattack.
Debt consolidation can be the best way to regain control over your finances, as long as you avoid scams.
What Is a Debt Consolidation Loan?
Debt consolidation loans combine multiple loans into a single loan with a single monthly payment.
Usually, debt consolidation loans:
- Help you lower your interest rates.
- Reduce the amount you spend every month on debt repayment.
- Help you pay down your debt faster.
The advantages of debt consolidation loans, however, are greatest if you seek them before you are in financial distress.
Corporations in the same category as Symple Lending, for example, may require a credit score of 660 or higher to be considered for a debt consolidation loan. You may still be able to get a loan with a low credit score, but the lower your credit score, the more interest you will have to pay. And if you are not disciplined after you get your debt consolidation loan, you can wind up even deeper in debt.
How to Avoid Debt Consolidation Scams
You shouldn’t necessarily take the first debt consolidation offer you see. There are debt consolidation companies that prey on naive borrowers, or don’t offer any debt relief services at all.
Here are seven red flags that signal trouble ahead if you take out a debt consolidation loan with a shady company.
- The company offers access to a “special government program.” This is a common scam on Facebook targeting older borrowers. Chances are, someone is just phishing for your personal information.
- The company is offering debt settlement, not debt consolidation. Debt consolidation makes it easier to pay your debts. Debt settlement companies attempt to negotiate with your creditor to get them to reduce the amount of debt you owe. Your credit rating takes a huge hit the same day you sign up for a debt settlement plan. Your credit is not hurt nearly as much with debt consolidation.
- Another version of debt settlement is a promise of debt reduction. Debt consolidation slows down the rate at which you repay your debt, but you repay your debt in full (and preserve your credit rating).
- The company contacts you first. This means the buzzards are circling your credit history, and the company that sends you the offer is hoping you will panic. Unsolicited debt consolidation offers usually come with high interest rates.
- You are told to stop paying your bills. You must continue making monthly payments until your debt consolidation goes through.
- The company pressures you to act fast. As long as you are making monthly payments to your creditors, you do not absolutely, positively need a debt consolidation loan.
- You are told to cease communication with your creditors.
Stick to lenders verified by the BBB and TrustPilot. Reputable companies like Symple Lending can help you find a debt consolidation loan at the best possible interest rate with the least damage to your credit.