When the bills pile up and minimum payments become increasingly difficult to make, an online debt consolidation program might be the solution for making your financial life more manageable and avoiding bankruptcy.
Online debt consolidation services and debt consolidation loans are offered by a variety of non-for-profit financial groups dedicated to educating consumers and helping participants develop budgeting skills and money management tools, so consumers can get out of debt and avoid the financial missteps that put enrollees in debt in the first place. Online debt consolidation services and debt consolidation loans are not the ideal solution for everyone, so it’s important to find a reputable company to help you build a better financial future.
How Online Debt Consolidation Programs Work
To consolidate your bills, most debt consolidation programs issue a secondary loan, such as a home equity loan or a personal loan, which can be used to payoff high-interest debts and credit card bills. The debt consolidation loan is then paid off in monthly payments. In the ideal scenario, a debt consolidation loan can control your bills and fixed expenses, such as housing expenses, car payments and other recurring bills. When you’re missing payments or behind on your bills, a debt consolidation loan can be used to avoid repossession or foreclosure by consolidating secured auto loans and home loans.
A debt consolidation loan can also be used to payoff unsecured loans and credit card debt, which is subject to sky rocking late payment fees and high interest rates that accelerate overall debt.
Find a Reputable Debt Consolidation Program Online
Enrolling in a debt consolidation program and applying for a debt consolidation loan is not a decision to take lightly. In most cases, applicants considering debt consolidation have missed one payment or more and have a poor credit score. When applying for a debt consolidation loan, creditors require some form of collateral. To ensure you can keep your home, your car and your most-valuable assets, it’s extremely important to ensure you are living within your means and are able to make the minimum payments on your debt consolidation loan.
A reputable credit counselor should spend one hour reviewing your expenses and budget to determine the best course of action. Before enrolling, a counselor should always tell you what you can do for free and create a budget that prevents spending beyond your means. In some cases, limiting overspending and creating a definitive budget is enough to reverse the situation and control your debt without taking out another loan. If you are having trouble making your payments on time, notify your creditors immediately. Whether it’s your mortgage payment or your credit card bills, creditors would vastly prefer to work out a payment schedule than pay a collections agency to recover the debt. If you are proactive and explain your financial situation, you have a better chance of negotiating lower interest rates and creating a customized payment plan.
How to Avoid Fraudulent Online Debt Consolidation Programs
Advertisements for debt reduction programs can be misleading, so it’s important to be familiar with the risks and benefits of debt management plans before entering a program. If online debt consolidation is right for you, you still need to work with a reputable credit counselor who can teach you money management skills and create a budget that your household can stick to. Be aware of companies that offer to negotiate lower interest rates to reduce debt. Although dealing with creditors can be intimidating, anyone can call their credit card company or lender and ask to negotiate lower interest rates due to financial difficulty. There are a number of ways for consumers to control debt without creditors, so it’s important to find a reputable debt consolidation organization who will tell you upfront what you can do on your own to reduce debt.
Never deal with an online debt consolidation company who charges upfront fees, monthly surcharges or requests voluntary contributions. Unscrupulous debt consolidation companies require participants to pay points in addition to interest on the loan’s principal. Debt consolidation programs should never request payment upfront or offer guaranteed acceptance to high-risk applicants who are willing to pay exorbitant upfront fees. Many of these secondary charges are illega,l and they are sign of a predatory debt consolidation company attempting to profit off of someone else’s misfortune. Reputable debt consolidation companies online or offline have loan application fees and also charge for credit reports. However, companies should never request personal information or monetary compensation for providing free information about debt consolidation services. If you are asked to provide personal information, always be aware of why the information is needed and what it will be used for.
To protect yourself and your family, it’s important to verify the credentials of any debt consolidation service. In addition to reviewing public complaints from the Better Business Bureau, consumers can validate an agency’s state license with the Attorney General or the Federal Trade Commission.
Sources:
Thee Worst Debt Consolidation Moves
Knee-Deep in Debt: Facts for Consumers from the FTC
Building a Better Credit Report
Choosing a Credit Counselor
