How to avoid shady debt consolidation or debt management companies

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How to avoid shady debt consolidation or debt management companies
Unfortunately, not all debt consolidation companies are legitimate. To avoid the shady companies, educate yourself on the debt consolidation process and watch out for these warning signs.

Quote Unusually Low Monthly Payments

A debt consolidation company works with creditors to lower your interest rates. Creditors have predetermined rates that they will lower to, so every debt consolidation program will get you the same rates. But since 2004, creditors no longer accept reduced minimum monthly payments.

Companies who quote unusually low monthly payments are probably giving you a low figure, which they will raise once you are in the program. Instead of comparing monthly payments, request information on their fees.

Demand All Debts Be Included

Companies who demand that all your debts be included in the debt consolidation don't have your best interests in mind. Some loans, such as credit union loans, are ineligible for lower interest rates. And other types of credit, like student loans, may already have a low interest rate.

However, by including all your bills in the monthly payment, the company can charge you a higher fee for handling more accounts. Before you enter a program, decide which accounts you want to consolidate for lower rates.

Charge High Upfront Fees

The most common scam is to charge high upfront fees, up to thousands of dollars, for services. Sometimes companies will promise to refund fees on completion of the program, but few clients actually complete the program.

Legitimate non-profit companies charge a flat monthly fee for each account handled. They are usually subsidized by financing companies. For profit companies will charge a competitive fee along with a flat monthly charge.

Offer Debt Settlement And Other Services

Be suspicious of those offering other services besides debt consolidation. Debt settlement, credit repair, and other programs are often just scams to take your money.

If you do need to make a debt settlement, you can save yourself money by doing this yourself. You may also find that declaring bankruptcy would be a better financial choice.

Request Account Numbers First

Be highly suspicious of any company that requests your account numbers, social security number, or other personal information before providing a quote. By providing this information, you open yourself up to identify theft.

To receive an accurate quote, simply provide creditors' names, balances, and interest rates.

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Compare debt consolidators and debt consolidation companies online

Debt consolidation companies negotiate lower interest rates for your unsecured bills, such as credit cards. By reducing your interest rates, you can pay off your debts sooner. These debt consolidation programs don't use a consolidation loan, so you can avoid additional credit issues. The following guidelines will help you find a reputable company that will not take advantage of your financial situation.

Request Quotes

Whether a debt consolidation company is non profit or for profit, they will charge monthly fees to service your payments. Fees range from $14 to $69 depending on the number of creditors involved. Upfront fees or a percent of your monthly payments are usually a sign of a fraudulent non-profit company. For profit companies do charge a fee since they aren't subsidized by creditors.

There are several legitimate debt consolidation companies out there. You want to make sure you are getting the best fees, so don't settle for the first quote you receive. To get accurate quotes, be prepared with a list of creditors, account balances, and interest rates. You can also decide how many accounts you want to consolidate, leaving a couple out to use for personal or business reasons.

Expect Questions

The best debt consolidation programs will ask questions before they give you quotes. Only by knowing your financial situation can they determine how long it will take to pay off your bills.

You should also be wary of companies that steer you toward debt settlement if you can't pay their fees. Such programs don't improve your credit, and you also get charge fees for something you could do on your own.

Demand Pay Off Dates

One sign of a good debt consolidation program is their ability to offer pay off dates. Each account will have a different date since account interest rates and balances will vary. However, general dates, like less than five years, are a sign of a shady company.

As with anything, if the claims are too good to be true, they probably are. By researching companies and asking questions you will not only protect yourself from scams, but also find the best company to help you reduce your debt.




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How to avoid shady debt consolidation or debt management companies
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