Consolidation companies are very popular with consumers who are dealing with a big amount of outstanding debts. Debt consolidation is when a consumer takes out a loan in order to make payments on all their current debts. Consumers tend to have a better credit rating when they consolidate all their debts and usually receive a lower interest rate. In order to choose the right consolidation company, it is important that consumers research their options. Here are a few tips to help consumers decide which consolidation company is right for them.
There are two different types of consolidation loans. The first type is called a debt management plan and the other is known as an open end or an accelerated repayment plan. In a debt management plan, the consumer will make one monthly payment to the consolidation company and they will disburse funds to all of their creditors. The consumer may also request to stop paying to some creditors so all their debts are consolidated into one.
The debt management plan requires lower monthly payments because there are fewer funds available. Accelerated repayment plans are almost exactly the same as the debt consolidation loan except that the loan repayments do not include fees for an extended period of time. Most debt consolidation companies offer both loans. The best way to find the right company is to shop around and compare lenders. The internet is a great source for doing just that. Many websites allow consumers to enter their information and compare multiple companies at once.
Before choosing a debt consolidation company it is important that you know your financial situation. Take a look at your income and expenses. Try to come up with a fair estimate of how much money you currently have to pay to all of your creditors. If you find that your debts are too large then a negotiation will not be successful. Instead, try to pay more than the minimum. When a creditor agrees to a settlement, they may be willing to settle for less than the total amount owed, if that means getting some money off of you.
Another important thing to consider when selecting consolidation loans is the term of the loan. Some consumers choose to take advantage of a lower interest rate for five years, but this can have negative effects on a person’s credit score. Also, it is important to remember that long term payments will have a significant affect on your finances. It is far better to make only short term payments and then make them a little bit larger each month until your debts are paid in full. If you are planning on using the loan for student loans or vehicle loans, then this will also have an impact on your credit rating.
Not all debt problems qualify for consolidation. If you owe money to a collection agency, your case will not qualify for a consolidation loan. Collection agencies deal with creditors directly and not banks, so they do not count toward the amount owed on a consolidation loan. Debt collectors get a percentage of the money owed back from creditors. It is not uncommon for them to get up to 60% of the total owed back. If your debts total at least six figures, you should look into a consolidation service instead of trying to negotiate with the collection agency.
There are some other things that credit counseling services do differently that debt consolidation companies do not offer. A credit counseling service does not offer one-on-one credit counseling. They simply refer you to a debt consolidation company if they feel that it is necessary. On the other hand, most credit counseling agencies offer personal loans and payment plans that can be used to fix your own credit problems without outside assistance.
When consumers looking for a debt consolidation company to work with, it is best to choose one that is part of the Better Business Bureau. These agencies have proven track records of sending out complaints to the company that they are working for or have received complaints about. The Better Business Bureau does not seem to have a very good record when it comes to choosing debt consolidation companies that are actually good. However, many reputable debt consolidation companies are members of the BBB, so it is still a good place to start.