Best Debt Consolidation Programs
If you've found yourselves drowning in overwhelming debt due to unexpected bills and expensive life events, you may be searching for the best debt consolidation companies. Over time, you can end up having several loans and it becomes quite tricky tracking them all. The overall debt can lead to one declaring bankruptcy or in danger of insolvency.
Overcoming this may be quite daunting considering high monthly payments and interest rates. I've compiled a list of the best debt consolidation companies to help you get started on the path to financial control.
The average American household carries more than $15,000 in credit card debt. Participating in a debt consolidation program can help to ease this burden and lower payments.
Debt consolidation companies help you manage your debt by negotiating for an affordable payment with the companies or creditors you currently owe.
What Is Debt Consolidation?
Instead of filing for bankruptcy or taking out a whole new loan, signing up for a debt consolidation program typically involves a company working with your creditors to come up with a repayment plan. This plan may or may not reduce the amounts you owe, and/or the interest rate that your creditors charge you. The best debt consolidation programs also involve credit counseling, which is a way of helping you develop a budget so that you can live within your means and get back on track financially for the long haul.
Debt consolidation companies should not be confused with debt consolidation loans. Consolidation loans involve borrowing more money to pay off your debts. Debt consolidation companies help you manage your debt by negotiating for an affordable payment with the companies or creditors you currently owe.
Best Debt Consolidation Companies: What to Consider
Choosing the right provider for your debt consolidation is crucial. There are factors that you should always take into account when deciding on a provider. They include:
1. Fees Charged
Most debt consolidation companies (and some credit counseling services), have a set fee they charge for the debt program. Some charge a percentage of the money they save you. Find out the amount each provider charges for setting up and maintaining a debt management program and incorporate that into your decision based upon your budget.
Reputation is essential when choosing a provider. A reputable company is also registered with either The Association of Independent Credit Counseling Agencies or The National Foundation of Credit Counseling. Do your research and don't just fall for their name or colorful website. According to Nolo, one way to avoid scams is by choosing a debt consolidation company that has an actual physical address rather than a P.O. box.
3. Customer service
You should be able to openly discuss your options with a debt consolidation provider. The provider should also be open and willing to answer any questions you may have regarding this kind of service. Always choose a provider who puts the customer's needs first and is always available to offer support when you need it.
4. Additional services
Some companies offer additional services, such as budget planning and debt counseling can help you manage your finances in the future avoid falling back into debt again.
5. Accreditations and certifications
A reliable provider should have reputable accreditations from renowned organizations like the International Organization for Standardization (ISO) and the Better Business Bureau (BBB).
6. Is it a profit or non-profit?
A non-profit provider charges lower fees compared to a for-profit provider. Keep in mind that the non-profit company still has to run their business and some charges may apply. Some companies claim to be non-profit when they are really not non-profit. Ask to see a certification of proof before settling on one given company.
Before deciding on a specific company, ask the terms they'll be offering you if you signed up with them. You want to read all of the fine print so that you're clear on where every dollar is going, when, and to whom.
Is a Program the Best Way to Consolidate Debt for You?
While debt consolidation works for some, it may not be the right option for everyone. When should you consider debt consolidation? The following are good signs that you may benefit from this service.
- Struggling with your monthly repayments - if you have multiple credit cards and are nearing your credit limit or you've already reached your limit, debt consolidation may be for you. It reduces the number of repayments and makes your debt easier to manage.
- Not reducing principal - if you aren't reducing your principal because the payment amounts barely cover the interest, debt consolidation may work for you as it may lower your interest rates and the amount you are required to pay, while still reducing the principal.
- High DTI (debt-to-income) ratio - if your DTI is too high, you may be in over your head. According to the Consumer Financial Protection Bureau, a DTI over 43% is often a predictor of difficulty making mortgage payments. I cover DTI more in-depth later on in this guide.
Before choosing a debt consolidation company, it is important to first find out how much credit card debt you're looking to consolidate as well assess the rest of your overall financial situation.
Good candidates for debt consolidation programs often have several different lines of credit, are forced to use credit for daily expenses, and have dwindling - or no - savings.
How Does Debt Consolidation Work?
Debt consolidation, also known as liability aggregation, helps you ease the financial pain and emotional toll that typically come with a high debt burden. Follow specific baby steps to chart an effective course to consolidate your liabilities and gradually repair your credit. A solid plan typically consists of total debt calculation, the timing of consolidation, professional assistance during and after the consolidation process, and your responsibilities after consolidating debts.
If you start screening your caller ID incessantly to detect creditors' calls, then you know it might be time to assess your financial situation and determine whether debt consolidation might be a viable option.
What Is Debt Consolidation?
Debt consolidation means a company, typically an intermediary negotiates with your lenders to reduce your monthly interest and principal payments. This typically happens if you are saddled with debts and coping with economic tedium, not to mention relentless calls from collection agencies – sometimes as early at 8:00 a.m. and sometimes past 9:00 p.m.
The debt consolidation company talks to your creditors, shows them your paperwork, explains why you cannot pay and why it is in the lender's interest to consolidate, and finally gets back to you with an answer. For example, say you owe a total of $32,000 on eight different credit cards. You lose your job or have to deal with another type of financial tumult, and you therefore, cannot make the total required payment of $3,000 to all eight card companies.
A debt consolidation business can help you reduce your total indebtedness, say, from $32,000 to $16,000, and make you deal with a single creditor to whom you would send your payment every month. This is very helpful if you were in the hypothetical situation I've outlined above because you not only cut your total debt by 50%, you also would have peace of mind knowing that you are dealing with one creditor and that you have to remember only one payment date.
How Do I Figure Out My Total Debts?
When finance people talk about "debt," "liability," "obligation" and "financial commitment," they refer to the same concept. One of my most distinguished finance professors in graduate school used to say that you are already in trouble, economically speaking, if you do not know how much you owe and need to figure it out through several calculations.
The idea here is that you might be knee deep in debt if your total indebtedness eludes you. To figure out how much you owe in total, pore over your bank statements, going through each payment to determine whom it went to as well as what the remittance was for. That way, you know exactly how much you are spending each month on debt service.
Next, review a copy of your credit report by contacting each of the top three credit bureaus – Experian, Equifax, and TransUnion. By law, you are entitled to a free credit report each year if you are a U.S. citizen or permanent resident.
By delving into your credit file, you can spot anomalies, inaccuracies, and fraudulent transactions. For example, if someone opened an account under your name and social security number, you would be able to detect the scam by combing through your credit file.
When Should I Consolidate My Debts?
Believe it or not, you would know when it is time for you to consolidate debts, and this typically happens when you can no longer make minimum payments, make them on time or even pick up lenders phone calls. If you start screening your caller ID incessantly to detect creditors' calls, then you know it might be time to assess your financial situation and determine whether debt consolidation might be a viable option.
You should consolidate your debts when your debt-to-income ratio rises precipitously, touching, for example, the alarming rate of 50% or 60%. Debt-to-income ratio equals your total monthly debt payments (money you sent to all institutions, from credit card institution to mortgage bank) divided by your net income, meaning your take-home pay. A ratio of 60% means that $6 of every $10 you earn goes to service your debt, an inconvenient scenario when compared with the recommended ratio of 30%.
What Are My Responsibilities After Consolidation?
If your application for debt consolidation is successful, make sure to keep your part of the bargain, which essentially is to make monthly payments on time, all the time. At the end of each month – or in the middle or on the 20th, it depends – you must send your check or electronic payment to the debt consolidation company, which, in turn, would transmit the funds to your creditors.
In some cases, you would send the check or online credit notice directly to the creditor, thus bypassing an intermediary. The creditor could initiate a legal action if you fail to pay on time or comply with the guidelines, terms and conditions you signed before embarking on the debt consolidation bandwagon.
Who Can Help Me?
Various organizations and professionals can help you on your way to debt consolidation. To successfully initiate and implement a liability consolidation process, follow a few of the recommendations below:
- Contact your state's Department of Financial Services to learn about reputable debt consolidation companies in your residence area.
- Reach out to the local Better Business Bureau branch for the same purpose.
- Review the U.S. Government's comprehensive online resource on debt consolidation.
- Ask your local BBB branch for a list of nonprofits that engage in debt consolidation.
- If your debt is substantial, hire a lawyer or financial planner to initiate the series of actions that ultimately could lead to debt consolidation.
Debt consolidation is not rocket science, but when faced with high indebtedness, you must take specific steps to ease your economic pain and eventually have peace of mind. These steps include figuring out your total debts, talking to the right people, determining when you should consolidate your debt, and knowing your responsibilities during and after the consolidation process.
The Best Debt Consolidation Companies
Finding the best debt consolidation company is important. There are several programs which provide value in terms of their service provision and reputation. The top companies include:
Consolidated Credit Review
- An ISO registered agency
- Over two decades of experience and expertise
- Credit counselors are certified
- A range of additional solutions
- Availability of a free consultation
- Enrollment and monthly maintenance fees
- Client Services only available from 9am-5pm
Having helped over 5 million people, Consolidated Credit is an established debt and credit counseling service. With over 20 years of experience in this field, Consolidated Credit provides access to a range of services geared towards helping those with debt and financial issues. This provider allows for consolidation of a variety of debts including unsecured debt. In addition, they offer some services for free including a debt analysis with the expert.
This company's main focus is to use debt consolidation to enable individuals to reduce their monthly payments and cut back on the amount of interest they are required to pay to creditors. Consolidated Credit also provides other services such as debt management, credit counseling, housing counseling, personal finances advice and credit card debt solutions.
Freedom Debt Relief Review
- 24/7 customer service on the web
- Large trustworthy company
- Track record of success
- Transparent business practices
- Available in 32 states
- No live chat
- Not available in every state
Based in San Mateo, California, Freedom Debt Relief helps clients enroll in debt management programs. To help you manage your debt, the company assesses your liability and negotiates with creditors on your behalf after coming up with a savings plan. The provider has qualified counselors who are able to work with you on a one-on-one basis. They also provide a variety of tools geared towards making money management easier.
Freedom Debt Relief focuses more on debt relief over debt consolidation. This means that they only charge a percentage of the money you save on your debt repayment program instead of charging you on a monthly basis. In the event that you are not satisfied with the outcome, the provider offers a money back guarantee. Furthermore, they work with a third-party management company and they can refer you, if you would prefer a debt management plan.
National Debt Relief Review
- An experienced and established provider
- Offers access to a range of tools and resources
- Provides services from expert counselors
- Contacts creditors to cease communication with you
- Enables you to avoid bankruptcy
- They use a third party provider for debt management
- Charged a percentage of the money you save
If you have debt that you cannot manage on your own, National Debt Relief can help. They offer free debt relief quotes to individuals struggling with debt. Based in New York, the company works to reduce business debts, repossessions, balances owed on credit cards debt, medical bills and any unsecured debt. Their main emphasis is on helping people avoid having to declare bankruptcy. National Debt Relief has expert counselors who work with clients in order to find a suitable program that will make money management easier. This provider is more focused on debt relief over debt consolidation. If you would prefer a debt management plan, they can refer you to a suitable plan as they work with a third party management plan.
- An established provider with expert counselors
- Offers a range of tools and resources
- Works with clients to find the most suitable solution
- Site has helpful debt calculators
- Offers financial education programs
- Monthly service fee
If you are looking for an established provider with expert counselors, DebtWave is a perfect choice. The provider works with clients to come up with a comprehensive solution which includes a debt management plan as well as debt consolidation.
DebtWave's main aim is to reduce monthly debt repayments to a manageable level, as well as reduce the amount you are required to pay in interest. If you made a late payment, this provider liaises with creditors to try and eliminate the charges that may have been applied to late payments.
Additionally, they negotiate with creditors to reduce the interest charged on debts. Having been in the business since 2001, DebtWave offers financial education programs and credit report evaluation that go beyond debt consolidation. Clients with unsecured debt can reduce the amount of payments to just a single one. DebtWave has a monthly service fee that is included in a single payment that you make to them.
- Flexible payment schedules
- Reputable service
- No hidden fees
- Competitively priced
- Monthly account maintenance fee
CuraDebt was founded in 2000 by a team out of California that wanted to open up financial debt solutions to individuals and businesses across the nation. They offer solutions for people struggling with both IRS tax debt and personal unsecured debt that could come from sources like medical bills and credit cards.
Risks Associated with Debt Consolidation Programs
Debt consolidation only works if you are paying less in interest and in the total amount. However, there are risks associated with this kind of loans. These risks may include:
- Hidden charges for late payments, default payments, alterations, or paying debt off early
- Potential maintenance charges or other fees by the debt consolidation companies
- Lack of access to any credit for the duration of the repayment plan (typically three to five years)
- Potentially worse impact on your credit if you default from your plan
The Best Way to Consolidate Credit Card Debt & More
Utilizing this option, you can consolidate a variety of debts. The common types of debts that can be consolidated include:
Personal Loan Debt
If you have two or more separate personal loans, it can be difficult to keep up with monthly repayments when you hit hard times. The best debt consolidation options create a realistic repayment plan that you can handle, sometimes with a lower interest rate or fees.
Credit Card Debt
Credit card debt consolidation is one of the most common issues that credit counseling agencies deal with. The goal is to give you the flexibility to pay off your outstanding balances with a less severe impact on your credit score than bankruptcy would incur.
According to a survey by the Kaiser Family Foundation and the New York Times, 13% of Americans with medical debt problems are burdened by $10,000 or more in bills. Debt counseling can help alleviate this problem.
Other types of debt you may be able to consolidate include private loans, utility debts and charge card debt. In some cases you may also be able to consolidate student loans.
Advice for Finding the Best Debt Consolidation Options
Before you start shopping for a debt consolidation company, make sure you are well-versed in the finer points of the industry. Learn about a variety of important topics such as:
- Questions you should ask before consolidating. Before you choose to consolidate, maker sure you know the important questions you should ask.
- How to think about your debt repayment. If you are struggling to repay debt, take a look at these mindset shifts that can help motivate you to tackle debt.
Best Debt Consolidation Companies Recap
Debt consolidation programs are a great way to get out of debt within a given amount of time. Because this option can have an effect on your credit as well as reduce or eliminate your access to credit lines until your repayment plan is complete, you should consider your financial situation carefully before moving ahead.
There are other options for restructuring your finances, as I mentioned earlier, such as borrowing one lump sum to pay off all of your debt at once. If you're considering this alternative, you'll want to compare the best personal loans. At some point, you may also find yourself needing extra money before you've rebuilt your credit rating. In this case, it's a good idea to check out the best bad credit loans.
Best Debt Consolidation Companies FAQs
How does debt consolidation affect credit?
There are several different methods of consolidating debt and each one has its own effects on your credit score. However, moving debt, closing credit cards, opening new ones and other financial moves like this will definitely have some sort of impact on your credit score.
Consolidation loans can both help and hurt your credit score. Opening any new loan can cause you to have a lower credit score for a while. On the other hand, if you have many credit cards and you use a loan to consistently pay them off it could help. However, even this can have a small, negative effect because there is portion of the credit calculation method that has to do with the ratio between available and used credit. Closing a card diminishes your available credit and affects this ratio which can cause a small dip in credit.
This part of the credit score calculation is also affected by debt management plans. When using a DMP through a consolidation service you typically have to close most of your credit cards which will lower your credit. Again, this portion of the credit score algorithm is small and shouldn't be detrimental to your credit.
No matter how you consolidate, the eventual goal should be to pay off debt which is ultimately good for your credit. However, it will definitely fluctuate as you go so it is not a good idea to consolidate if you are planning to make a big purchase that requires an optimal credit score.
What is debt consolidation?
Debt consolidation is taking all of the various debts you have a putting them into one debt that you then pay off. This is usually achieved by borrowing from one source that allows you to eliminate the other debts. Then you can focus on one debt with one interest rate as opposed to many. Ideally the consolidated debt has lower interest rates.
Consolidation can be done on your own with a debt consolidation loan or through a consolidation service. Consolidation loans usually mean turning your unsecured debts into one secured debt, which means you borrow against collateral like a house. Some consolidation services offer consolidation through unsecured loans which means no collateral is needed.
What is debt consolidation?
Debt consolidation is the process of putting all your debts into a single debt that you can manage. This is achieved by borrowing from a single source which subsequently helps you eliminate other outstanding debts. The purpose is to help you focus on a single debt with one interest rate as opposed to multiple.
What kind of debts can I consolidate?
In most cases, debt consolidation applies to your unsecured debts. You can consolidate credit card debts, but this will depend on the amount and your payment history. You can also consolidate payday loans, cash advances, and medical bills (if they are less than a year). For more information it's best to contact our credit counselor for a personal debt consultation.
What is penalty APR?
This is the annual percentage rate you are changed by your creditor if you are late or miss making a payment. It is higher than your normal interest rate. If you are less than sixty days late, the penalty APR is only applicable on the new charges. However, if you are more than sixty days late, it is applied to the full amount. It is applied for 6 months.
How does credit card debt affect my credit score?
The effects on your credit card depend on your situation. Factors like late or missing payments, or having large sums of debt can have a negative impact on your credit score.
Are all debts the same?
No, all debts are not the same because they work differently depending on the kind of debt. Credit cards are considered unsecured recurring debt, while car loans and mortgages are secured installment debts.
How do I choose which debts to pay off first?
Just ensure you pay all your debt installments on time. However, if you have extra money, focus on paying off one debt at a time. Since mortgages and car loans are fixed, you may want to pay off credit card debts first. It's also wise to pay off higher interest rate card first.
I have missed payments and am being harassed by creditors, what are my rights?
If you have missed payments and you are being harassed, call the consolidation company immediately. They will review your case along with viable options. There is also an act that protects your rights when it comes on how a creditor can contact you.
How do I know when to get a debt relief?
This depends on the individual. However, there are signs that indicate you need debt relief. You may be a good candidate if you cannot pay the monthly installments for all your debts.
Are debt consolidation and debt management the same thing?
Debt management is a form of debt consolidation because it puts together several unsecured debts into a single monthly payment. But it is not a debt consolidation loan. You join in a debt management platform through a credit counseling agency.
How much credit can debt can I consolidate?
There is no fixed maximum of credit card debt you can consolidate. Some people have even consolidated upwards of $75,000 in debt. However, it depends on what your debts and your own financial circumstances are.