The easy availability of credit in today’s economy, coupled with uncertainties in the job market, have led many individuals and families to wonder if it is time for them to get a debt consolidation loan. While there are many potential sources for debt consolidation loans, individuals with compromised credit scores often need to spend more time shopping for a loan, and will almost certainly end up paying a higher interest rate when they do succeed in finding a lender. Potential sources for those seeking to get a debt consolidation loan include:
- Banks and Credit Unions
- Debt Consolidation lenders
- Debt Relief companies
- Consumer Counseling Agencies
Debt Consolidation Loans from Banks and Credit Unions
Banks and credit unions do offer a wide variety of the loans, but usually adhere to guidelines restricting their ability to lend to persons with low credit scores. Even applicants wishing to get a debt consolidation loan with credit scores above the cutoff level can expect interest rates at least as high as those available from other sources.
Specialized Debt Consolidation Lenders
Unlike most banks and credit unions, specialized Debt Consolidation Lenders have the staff and expertise required to make available quality professional service to clients with weak credit histories. They manage the risks inherent in their business using a number of important risk management skills and techniques:
- They take the time to thoroughly investigate each applicant’s financial status.
- They offer each applicant a range of repayment options which they determined are realistic based on their understanding of the applicants financial status.
- They make the interest rate on each loan high enough so that the interest earnings from successfully repaid loans will offset losses from the predicted number of loans that will not be fully repaid.
- They may elect to “bundle” groups of high interest loans into investment instruments that they can sell at a profit to investors willing to accept the risk of a higher than expected default rate in exchange for the higher than average interest payments on the investment.
Check with your local Better Business Bureau before selecting a Debt Consolidation Lender.
Specialized Debt Relief Companies
Like specialized Debt Consolidation Lenders, Debt Relief Companies retain staff with skills not usually required by Banks or Credit Unions. Also like Debt Consolidation Lenders, they go far beyond the information provided in a credit report to understand each client’s financial condition. Their aim is to accurately determine the monthly amount each client reliably has available for debt repayment after meeting basic living costs. Debt Relief Company specialists then provide services that may include:
- Negotiating with the client’s creditors to attain better loan terms and/or forgiveness of accrued penalties in exchange for the promise of a future lump sum payment to settle the debt.
- Helping the client assemble the sum of money that is often required for high risk borrower to get a debt consolidation loan from a Debt Consolidation Lender.
- Setting up an escrow account into which the client makes set monthly payments, and from which the Debt Settlement Company disperses negotiated monthly payments directly to the client’s creditors.
- Integrating some or all of the above services into a formal Debt Management Plan which, if followed diligently, will allow the client to be debt free within a set period of time, and at a known cost.
As is the case with specialized Debt Consolidation Lenders, it is important to get referrals from trusted sources, and double check with the local Better Business Bureau before selecting a Debt Relief Company. It is also important to make sure the counselor handling your case is accredited by a national trade association, and can provide evidence that all required training has been successfully completed.
Nonprofit Consumer Counseling Agencies
Individuals and families facing a rapidly increasing debt crisis are at risk of acting out of fear and ignorance with the result that their effort to get a debt consolidation loan ends up making an already bad situation much worse. They may choose a loan package that they cannot afford, or worse, fall victim to one of the many unscrupulous operators drawn like vultures to the rapidly growing “troubled consumer debt” marketplace. Selecting a Consumer Counseling Agency is not without risks, but using references from trustworthy sources and double checking with the local Better Business Bureau, substantially reduces those risks.
An experienced certified debt counselor can help clients in a number of ways:
- They can help clients understand the total cost of their current debt, and reduce the debilitating effects of fear and uncertainty by assuring clients that there are multiple approaches to solving their particular debt problems.
- They can help clients establish a realistic budget that covers basic necessities, sets aside at least some money for savings, and establishes how much can be allocated to monthly debt repayment.
- They can help clients understand the pros and cons of available pathways out of their current financial difficulties.
- They can direct clients to training materials and other resources to strengthen the client’s financial management skills.
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