5 Warning Signs of Poor Debt Consolidation or Debt Management Companies

Unfortunately, not all debt consolidation companies are legal. To avoid shady companies, learn about the process of debt consolidation and be aware of these warning signs.

Quoting Extraordinary Low Monthly Payments

Debt consolidation companies work with creditors to reduce your interest rates. Creditors have set rates that they will lower, so each debt consolidation program will give you the same rates. But since 2004, creditors have not received reductions in monthly minimum payments.

Companies that quote exceptionally low monthly payments might give you low numbers, which they will increase once you are in the program. Instead of comparing monthly payments, ask for information about the costs.

Demand All Debts Included

Companies that demand that all your debt be included in debt consolidation do not have your best interests. Some loans, such as credit union loans, do not qualify for lower interest rates. And other types of credit, such as student loans, may already have low interest rates.

However, by including all your bills in monthly payments, companies can charge higher fees to handle more accounts. Before you enter a program, decide which account you want to consolidate for a lower rate.

Charge high initial costs

The most common fraud is to charge high initial fees, up to thousands of dollars, for services. Sometimes companies will promise to return the costs at the completion of the program, but only a few clients actually complete the program.

Legitimate non-profit companies charge fixed monthly fees for each account handled. They are usually subsidized by finance companies. For profits the company will charge competitive costs along with fixed monthly fees.

Offering Debt Settlement and Other Services

Suspicious of those who offer other services besides debt consolidation. Debt settlement, credit repair, and other programs are often just scams to take your money.

If you need to settle a debt, you can save money by doing this yourself. You can also find that declaring bankruptcy will be a better financial choice.

Request First Account Number

Be very suspicious of any company that asks for your account number, social security number, or other personal information before making an offer. By providing this information, you open yourself up to identifying theft.

To receive an accurate offer, just provide the name, balance, and creditor interest rate.