A debt consolidation loan can act as a financial lifesaver for consumers struggling to manage their revolving debt. Unfortunately, the debt consolidation industry does have its share of bad apples, companies that charge unreasonable fees to desperate consumers. It’s why the debt consolidation industry, along with payday lenders and debt settlement firms, has such a bad reputation, and why it routinely gets such bad press. Even state legislators frequently target these companies. The truth is, though, that consumers who do their research before taking out one of these loans can get their financial lives back in order with debt consolidation.
Beware Of Upfront Fees
Terry Savage, a financial columnist, recently wrote in the Chicago Sun-Times about the dangers inherent in working with debt settlement and consolidation companies. Her concerns centered on fees: Some of the companies promising debt relief to consumers charge upfront fees that total as much as 17 percent of consumers’ outstanding total debt. That is an exorbitant fee. And it’s why it’s important for consumers to do their homework before taking out a debt consolidation loan or working with a company that provides debt settlement. Consumers should make sure to get a list of all the fees and possible penalty charges they face when working with one of these companies. If those fees seem excessive, consumers should shop around for a new debt consolidation company. If the company won’t provide a written list of fees, consumers, again, should hunt for a new firm with which to work. There are certainly plenty of debt-management companies out there today.
States Get In the Act
Consumers don’t have to heed only the warnings of financial columnists. Several states have also issued warnings advising consumers to avoid working with debt consolidation firms that charge hefty upfront fees. Just recently, North Carolina and Montana joined the growing list of states expressing concerns about the rates that some of these firms charge borrowers.
There is a reason that consumers often jump into relationships with debt consolidation firms without first during their research: These consumers are struggling financially and are desperate for any possible financial help they can get. The hope of ending the calls from collection agencies and not being afraid to get their mail each day is enough to cause them to jump at the first debt consolidation opportunity they can find. This, unfortunately, is something that won’t change until the national economy, and unemployment improves. Consumers, though, should follow the advice of Savage and several state legislatures: They need to take the time to find out exactly what they’ll be paying every time they take out a debt consolidation loan or work with a debt settlement provider.