Debt consolidation can be a godsend, but debt consolidation scams can be an entirely new added nightmare. Learn how to avoid them.
America is a borrowing nation. The average American has an auto loan, student loan, personal loan, credit card debt, and a mortgage.
Does this look like your credit situation? If yes, you probably don’t like the fact that you have to deal with multiple lenders. Or some loans have a high interest and you’re wondering what you can do to bring them down.
There’s a quick solution: debt consolidation. This allows you to take out a lower-interest loan, from which you’ll pay off all the other loans.
Unfortunately, there are debt consolidation scams right, left and center. If you’re not careful, you could fall victim.
This shouldn’t discourage you, though. Continue reading to learn how to dodge these scams and make debt consolidation work for you.
Understand How Debt Consolidation Works?
What does consolidation mean? If you’re pursuing debt consolidation and want to avoid the associated scams, you must have an answer to this question.
When you know what debt consolidation is and how it works, it’s harder for a scammer to mislead you.
In a nutshell, debt consolidation is a debt repayment strategy. It offers you the chance to do away with your high-interest loans, usually credit card debt. In most cases, the consolidation loan will charge a lower interest rate than the average interest rate of all your outstanding loans; otherwise, it wouldn’t make any financial sense to take out a consolidation loan with a higher interest.
Now that you know how consolidation works, let’s focus on how to identify a scam.
Access to Special Debt Relief Programs
If you find a debt consolidation company claiming that it can help you gain access to special debt-relied programs, proceed with caution.
Sure, debt relief programs exist, but they are typically managed by lenders or government agencies, not third-party consolidation companies. If you need debt relief, approach your lender or a non-profit debt relief organization.
Getting approved for a debt consolidation loan isn’t a guarantee. Lenders will typically look at a range of factors before making a decision on your application.
As such, be wary of debt consolidation companies that charge up-front fees. This means they’re asking you to pay for a service that isn’t guaranteed. A legit company should only ask you to pay after your debt consolidation loan has been approved.
Similarly, the company shouldn’t guarantee that your application will be approved, even if you’re required to pay up-front fees. If you fall for this, something will usually come up as you wait for the application to be processed, and the company will ask you to pay a small fee.
No Online Presence
Before working with a debt consolidation company, research it online. If it has little or no presence, that’s a red flag. If it has a ton of negative reviews, that’s another red flag.
Avoid Debt Consolidation Scams
Debt consolidation is an effective debt management strategy. However, there are lots of debt consolidation scams prying on innocent borrowers like you. With this guide, though, you now know what to look out for.
Keep reading our blog for more personal finance advice.