In part 1 we talked about what a debt consolidation loan is and if it is an option for your payday loan. We also talked about how to find a reputable company for debt consolidation and how debt management and debt settlement are different. Now, we need to discuss How To Avoid Debt Consolidation Scams.
There are several different things to look for when it comes to choosing a debt consolidation company. Just like any other company you would do business with, there are certain red flags that may come up when choosing to enter into an agreement. The first is to make sure you are not being pushed into using a company's service. If the representative is aggressive, trying to get you to make a decision immediately, it's a sign to turn the other way. They most likely aren't looking out for your best interest but are merely trying to make a sale. Who knows how they will deal with your payday loan lender if they are treating you that way.
Another telltale sign that you should walk away is if the company tries to sell you services other than debt consolidation. They may use the idea of consolidation to get you in the door but once your in they may start talking about negotiating with your creditors to get your principal balances down. This is debt settlement, not consolidation and a much riskier option to take; one that should be used only as a last resort. In the case of a payday loan, you would have to come up with a lump sum of money in order to pay off your lender. If you are looking to consolidate, then most likely you don't have the total amount owed on your loan.
Other things to look out for is if the company tells you that your consolidation will be a "quick fix". There's no such thing! It's a process but one that is well worth it if you are diligent on making your payments because your payday loan will be paid off along with your other debts. Also, if the company makes you feel uncomfortable in any way, find another. If they are not willing to take the time to hear about your situation and take into consideration your concerns, they don't have your best interest in mind.
Looking at the "bottom line" should be what makes or breaks getting a consolidation loan. If the numbers don't add up and make sense, then you may need to reconsider. Remember, any company you go with will charge you fees. This should be the deciding factor on whether or not you want to move forward with consolidating your payday loan and other debt. Even if they are non-profit.
A company may or may not charge you upfront fees being that they make their money off the interest you pay. Are you able to pay the fees? Keep in mind you will still be paying interest on your debts as well. The point of consolidation is to get a lower interest rate overall but how long is your loan term? What's the point of getting a lower interest rate only to have your payment term twice as long? You could end up paying more in the long run.
Add up the amount of upfront fees you will pay plus the total interest you will pay over the life of the loan. Then add up the amount of interest you would pay with your current debt over the same amount of time and compare the two. If you aren't going to save any money by consolidating, you may want to rethink this one. If you are still on the fence because you really want that lower payment and know you will struggle to pay multiple bills like you have been doing, consolidation may still be an option. A more costly option, though.
Whatever you decide, do your research, look at several different companies, work the numbers and take time to make a thoughtful decision. If you don't, it may cost you in the end!