Debt Consolidation Alternatives

Debt consolidation has become a major industry in recent years, as personal debt rises to higher and higher levels. You've probably received a number of offers suggesting debt consolidation loans as the solution to your growing debt problem, but that might not be the right solution for you.

A major appeal of debt consolidation loans is the convenience that they offer. Instead of paying 20 different creditors who are charging different rates at different times of the month, you take out one big loan and pay off all those accounts.

Then you make a single payment on that loan once a month. Unfortunately, ease doesn't automatically translate into to savings. Consider the following to make sure that these loans are right for you.

Consider the Costs

Before you sign on the dotted line, be sure that the costs of the loan will really be less than what you're already paying. For many borrowers, their current credit problems can mean that they might not be able to get the lowest available interest rate on their debt consolidation. Calculate interest and fees on all your existing accounts to determine the total amount that you're paying on the payments you now make. Compare these amounts with the consolidation loan numbers in order to make sure it truly is a better choice.

Shop Around

As with any product, you should shop around to make sure you're getting the best deal when considering a loan for debt consolidation. Local banks, mailers, and e-lending programs are all competing to give you the best rate. The more you research, the more you'll end up saving.

Managing debt

Before seeking a loan for debt consolidation, be sure that it will be more beneficial than simple debt management. Debt management can cost less and is quicker than a debt consolidation loan, if you can work out a good system. Professional credit counselors can help you with this, if you feel you're in over your head. Credit counseling agencies will force you to stop racking up debt, while consolidating your debt and reducing your payments.

Avoiding Predatory Lenders

An even more costly potential pitfall is the disreputable debt counselor. Some credit counseling and debt consolidation companies are only interested in making a quick buck on debt-ridden consumers. Other firms offer shoddy service at sky-high fees, or are scams aimed at desperate individuals. To find a reputable firm, verify certifications or third-party registrations. You can ask the service for references and then confirm them.

Make sure that the debt management or credit counseling firm answers all your questions and that you have a firm understanding of how the process will work and what it will cost. If the company won't give you straight answers or you don't understand what's going on, don't sign up with that company.

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Paul Parker writes finance and loan articles for the Secured Loans UK Online website at http://www.securedloansukonline.co.uk

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