If you are overburdened with debts to several different creditors, debt consolidation can seem like a dream come true. While there are definite benefits to working with a qualified and reputable debt consolidation organization, you should be aware of the various fees that are typically associated with the service provided. Three major charges are associated with consolidation loans: an upfront fee, a regular monthly fee and a monthly interest fee. While consolidation can streamline your credit payments and ensure the safety of your credit report from any further damage due to late or non-payments, you should make sure that a consolidation loan would actually save you money before you sign on the dotted line.
Upfront Fees
When you work with a debt consolidation organization, whether it is non-profit or for-profit, they will require you to pay an upfront fee for their services (though the non-profit may call it a suggested donation). While it is perfectly reasonable to charge a fee for debt consolidation services rendered, since everyone has to make a living, some disreputable agencies charge a lot more than they should.
Some companies break their upfront fee into two individual fees, so that they seem more reasonable to clients. They charge a minimal “upfront fee” that is usually less than $50 but then also charge you a “set up” fee that can be hundreds of dollars. Do not be fooled! Make sure that when you have your initial consultation with any prospective debt consolidation firm, you vet them thoroughly on all of their upfront and set up fees. A good agency will be transparent with you and offer a fair service at a fair price. If any prospective agency evades disclosure of all their fees, keep looking for an agency that is willing to honest with you from the start.
Monthly Fee
Almost all debt consolidation organizations charge a monthly fee for services rendered. The fee varies widely depending on the agency with which you choose to do business but should be under $50 a month. Be aware that some agencies do not charge monthly fees at all, but rather make their profits from the upfront fee and the interest rates charged on your consolidation loan.
With these pricing parameters in mind, feel free to negotiate with your consolidation company in order to secure a lower monthly fee than is initially offered. If you make it clear that you have researched other companies and discovered lower monthly fees, the consolidation company will be more apt to negotiate with you.
Interest Rates
Debt consolidation companies will charge monthly interest fees on your loan until it is paid in full. Interest rates vary from organization to organization, as well as according to the individual terms of your loan. Repayment plans that are stretched out over long periods tend to garner higher interest rates, so you should consider being as aggressive as possible with your payment plan in order to make it as short-term as possible.
Some consolidation companies try to charge outrageous interest rates for their service (20% and up), which may turn out to cost you more per month in interest than your original creditors would have charged you. Make sure that you do business with a company that is willing to charge low interest rates for their loans.
Debt consolidation counseling is a viable option for men and women that are having difficulty coming up with multiple minimum payments every month to several different creditors. While there are many reputable agencies out there with which to do business, you should be aware of the fact that there are also some predators out there looking to take advantage of your vulnerable financial situation. Do your homework and choose a debt consolidation organization that is willing to charge reasonable fees for their services.