On Your Side: Debt consolidation
Inflation and interest rates are causing more and more Americans to go into debt. That's why debt consolidation is rising in popularity. But how do you separate the reputable companies from the scams?
According to U.S. News & World Report, seven out of 10 people they surveyed who consolidated their debt said it led to improved finances.
Thirty percent of those surveyed consolidated $10,000 in debt or more into a personal loan, but nearly half (48 percent) say they encountered scam offers while shopping around for debt consolidation loans.
There are red flags to look out for:
- Anyone who promises to get rid of your debt altogether is likely a scammer, according to experts.
- Be wary if they charge up-front fees for their services.
- If they ask you for personal and sensitive information, like your Social Security number at the get-go and don't provide much information in return, that's cause for concern.
"I would say that if you do get a debt consolidation loan offer, make sure you research the lender through the Better Business Bureau and just do a very basic Google search," said U.S. News & World Report Loans Expert Erika Giovanetti. "You want to make sure that it's not the type of lender that can get away with charging triple-digit APRs."
And that's why it's important to get pre-qualified and find out what the terms of the loan are and what interest rate you'll be paying up front is.
By law, these debt consolidation companies have to tell you that before you sign up for a loan.
Experts say use a loan calculator before you consolidate to compare the interest rate you're paying now for all your debt with what you would pay if you combine your debt.
And if you use a nonprofit credit counselor, which is a really good option if you have poor credit, make sure they are accredited through a trade organization like the National Foundation for Credit Counseling.
