Four Questions to Ask a Debt Consolidation Service
By Francine L. HuffMortgage Credit Problems Columnist
There's no shortage
of debt consolidation services advertising solutions to debt woes on TV, radio,
and the Internet. While some people can benefit from these services, others may
end up in worse shape than before. Here are four questions people should ask
any debt consolidation company before agreeing to do business with them.
- What Is Your Fee?
Before signing any contracts,
understand the debt management plan fees and what services they cover. Many debt
consolidation services will charge a signup fee, but reputable agencies usually
charge less than $40, which is paid with the first month's payment. Know when
the fee is due and whether it is calculated based on a percentage of the total
amount of debt or on the number of accounts being consolidated. Free debt
consolidation programs may be available through military bases, colleges, credit
unions, or community agencies.
- What Are the Repayment Terms?
Realize that getting a debt
consolidation loan is like any other financial transaction. It's important to understand
all the terms and conditions and read through the fine print of the contract.
The contract should include the amount of monthly payments, length of the debt
consolidation loan, and final payoff date. Most of the monthly payments should
be going to satisfy creditors, and the monthly payment to a debt consolidation
plan should be 30% to 50% less than the bill payments before consolidation.
- Do They Offer Credit Counseling?
When working through debt issues it's
important to get knowledgeable advice about managing money. A reputable credit
counselor can not only put together a debt management plan, but can offer help
with budgeting, repairing bad credit, and negotiating with creditors. Consumers
should ask if the agency is licensed and accredited, if counselors are
qualified, and whether or not clients' personal information is kept
confidential. It's also important to check with the Better Business Bureau or
state attorney general's office to find out whether any complaints have been
filed against the service.
- Can Agreement Be Terminated?
People who have trouble paying on their debt consolidation loan may end up having their agreement terminated. If they are unable to keep up with the minimum payments originally owed on debts, they also may have their accounts turned over to collection agencies by individual creditors. If people terminate the debt consolidation plan themselves, creditors may work with them but they may find it difficult to get favorable repayment terms.
DebtSteps
United
Way of Connecticut
About the Author
Francine L. Huff is a
freelance journalist and the author of The
25-Day Money Makeover for Women. She
has appeared on a variety of TV and radio shows.
About the Author
Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.
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