Bill, I need to consolidate my credit card debt. Can you tell me where to find reviews of consolidators so that I can pick a good one? Or more importantly, avoid a bad one?
Before I address your question about where to find credit card consolidation reviews, let me take a quick detour into the word, "consolidation."
The dictionary definition of consolidate is to combine two or more things into one. By that definition, the only true form of debt consolidation would be to take out a new personal loan for the purpose of paying off several old debts. That tactic is certainly possible, but it is not what most people think of when they say "debt consolidation."
You were probably thinking about credit counseling and debt settlement as a way to consolidate your credit card debt. I will describe each briefly, plus contrast them to debt consolidation loans. Then I will talk about how to find reviews of winning credit counseling and debt settlement providers.
I think of credit counseling as a two-part process. Part 1 is meeting, usually on the telephone, with a credit counselor who walks you through your household budget. There are two reasons for this. First, in some cases, a large amount of credit card debt is a symptom of a failure to set spending priorities. By setting your household's priorities, you can cut out unnecessary expenses. Second, the household budget helps determine if you can afford the monthly payment in Part 2 — the debt management plan (DMP).
A credit counselor sets up a DMP with credit card issuers and other creditors of your enrolled debts. The credit counselor will negotiate a "concession" interest rate from the creditors that is oftentimes lower than the present rate paid now. Sometimes the concession rate is higher that your current rate, so pay attention to each accounts current rate and what the concession rate will be.
A typical DMP takes 5 years to complete. The cost is high, which combined with the long program length causes the success rate of credit counseling to be lower than debt settlement.
I think of debt settlement as a two-part process, too, although both parts happen simultaneously. Part A is handled by the consumer, and Part B by the debt settlement company. The consumer enrolls his or her debts in the debt settlement plan. In Part A, the consumer stops making payments on the debts, and instead makes monthly deposits into a special bank account.
As Part A happens, negotiators at the debt settlement company start Part B. In Part B, the negotiators begin talks to resolve lump-sum settlements with the creditors. As the amount saved in the special bank account grows, the negotiators resolve the debts for a fraction of their stated balances.
The completion times and the monthly payment amounts vary with each situation. Some creditors have hard-nosed negotiating policies, and others do not, perhaps hoping a reasonable settlement will cause the consumer to become a customer again in the future.
The chief downsides to debt settlements are a negative impact on the consumer's credit score. However, if the consumer is already late with their payments, or is not planning to apply for a loan in the future, the credit score drop is not a large amount or even an issue. The other downside is the chance of creditor litigation. However, this is a rare event.
Debt consolidation loans can take the form of personal loans, home equity loans (also known as second mortgages), or cash-out refinances. The two keys to approval for each of these three loans are the applicant's credit score and debt-to-income ratio.
If the applicant has a low credit score or high debt payments, chances are lenders will not approve a debt consolidation loan. Or, if they do approve such a loan, the interest rate will be very high. However, if you own property, consider a debt consolidation loan.
A good way to learn if credit counseling, debt settlement, a consolidation loan is right for you is to access the Bills.com Debt Coach. Debt Coach is a no-cost, no-nonsense online tool that analyzes your situation and goals, and gives you a personalized list of your debt resolution options and the costs of each.
Now let's look at how to find credit card consolidation company reviews.
|Brief Comparison of Consolidation Options|
|Option||Credit Counseling||Debt Settlement||Consolidation Loan|
|Monthly Cost||Relatively high: 3% of your enrolled debt balance. For each $1,000 of debt, payment is about $30.||Varies widely depending on consumer's budget - 1.5% to 2% of enrolled budget. For each $1,000 of debt, payment is $15 - $20, but this varies.||Varies based on type of debt consolidation loan.|
|Time to Debt Freedom||5 years, typically||1.5 to 4 years||5 - 30 years|
|Negative Credit Score Impact?||Varies depending on credit counselor making payments on time.||Yes||No|
|High Credit Score Necessary?||No||No||Yes, typically|
|Home Equity Necessary?||No||No||Yes, typically less than 80% loan-to-value ratio. Also need income history.|
As with any reviews you read online, whether they are of movies or new TV shows in your local newspaper or books on Amazon.com, take each individual's review with a grain of salt. The reviewer may have an ax to grind, or may not be disclosing everything.
Remember that people who have a negative experience are more apt to complain than a satisfied customer. After all, we expect good service and most places where we shop provide it. For example, when was the last time you wrote a positive review about your local grocery store, gas station, or bank?
However, if your grocery store short-changed you, or the gas station sold you a bad batch of gas, or the bank charged too much interest on a loan, you would probably tell your friends and neighbors about these mistakes. You might even post a negative review online. It's human nature to want to warn others when we've been harmed.
Instead, watch for trends in the reviews. Do you see consistent complaints about surprises in fees? A string of warnings about unresponsive customer service? A list of unresolved accounts or, in the case of credit counseling, missed payment deadlines? These concrete complaints about specific deficiencies are warning signs.
Also view the comments in context. For example, Starbucks has about 19,000 company-operated and licensed locations. If one online complaint was voiced about each location per year, it would appear Starbucks offered the worst service on the planet. But, of course, Starbucks has a corporate culture of offering consistent, excellent customer service.
Most people would agree that one complaint per 100,000 transactions or so would be superb if not near-perfect service. Larger debt settlement and credit counseling providers will suffer the Starbucks effect of seemingly offering poorer service not because they do, but because they serve more customers.
Where can one find reviews? I would be remiss if I did not mention the reviews of debt settlement and credit counseling companies at Bills.com.
Another service that tracks customer complaints is the Better Business Bureau (BBB). The BBB presents useful background information on when the business was formed, and the address for its headquarters. It may also list the names of company principals.
The BBB offers a company grade on the familiar A-F scale. Unfortunately, the BBB grades on a curve. Businesses that join the BBB and pay its annual membership fee get higher grades than non-members. So here again, take the review in context.
Finding and reading online reviews should be one part — and not the only part — of your search for a credit card consolidation top provider. See the Bills.com article Find the Best Debt Counseling for a 15-point checklist to help you select a great partner.