- 4 min read
- Figure out what type of debt you need to consolidate.
- Determine what goals consolidation companies can help you achieve.
- Shop around to find the right consolidation company.
Tips on Choosing the Right Consolidation Companies
Does your debt have you mixed up? By combining your debts together in a debt consolidation program, you can find the best solution.
Working with debt consolidation companies can help you save money. What kind of consolidation company is right for you, depends on the types of debt you have, your credit profile, and your assets.
Reasons for Working with Consolidation Companies
You should consider working with consolidation companies if:
- You have a lot of different types of debts, such as student loan, credit card debt, and personal loans.
- You have multiple debts with one creditor.
- You have multiple debts with different creditors.
Common reasons to work with consolidation companies include:
- Reducing your monthly payment
- Lowering your interest rate
- Simplifying your finances
Use the Equity in Your Home
When you're considering the services that consolidation companies offer, if you own a home with equity, look into mortgage consolidation companies. If you're eligible for a cash-out refinance loan, it can be the cheapest way to consolidate debt. Because your loan is secured by the value of your home, you can borrow at a lower rate than you can find on from consolidation companies that offer unsecured consolidation loans. Given today's low interest rates, it can be a great way to pay off high interest credit card debt.
Quick tip # 1
Read the reviews that Bills.com readers have provided about mortgage consolidation companies, to help you find the right mortgage company to work with.
Debt Consolidation Companies
Mortgage lenders are one type of consolidation company, but to qualify for a home loan that consolidates your debt, you need strong credit and income. If you have a lot of debt and a poor credit rating, you won't be able to do a cash-out refinance, even if you have a lot of equity in your home. To get out of debt at the lowest costs and in the shortest time, the services of professional debt consolidation companies may be your best option.
You should look at both of the main approaches that debt consolidation companies use, credit counseling and debt settlement. Both approaches have pluses and minuses. Don't choose either option without reviewing the pros and cons and determining which approach is better for accomplishing your specific goals.
Quick tip # 2
Read the reviews that Bills.com readers have provided about debt consolidation companies, to help you find the right debt consolidation company to work with.
Student Loan Consolidation Companies
Student loan debt is not eligible for including in programs offered by professional debt consolidation companies (aside from paying off in a cash-out refinance). To consolidate student loan debt, you need to work with a lender that has a special student loan consolidation program. The type of student loan consolidation you seek in large part depends on whether your loans are federal student loans or private student loans.
Federal student loan consolidation allows you to combine multiple federal student loans into one loan. If your new loan lowers your interest rate, you can save money. It can also help you lower your monthly payment by increasing the term of your loan. In the past there were a number of student loan consolidation companies that consolidated federal student loans. Now, all federal student loan consolidations must be done directly through the Dept. of Education.
Private student loan consolidation companies are going to review your credit and income, the same as any unsecured personal loan lender. You need good credit and steady income, in order to qualify. While it is often difficult to consolidate private student loan debt, make sure you see if there is any way to improve your current position by consolidating. You won't know unless you take the effort to find out.
If you are struggling with student loan debt, read more about student loan consolidation, as a starting point.
Basic Consolidation Rules
There are some basic rules for you to keep in mind when looking at consolidation companies.
- Find the right consolidation approach for your situation.
- Shop around.
- Avoid high-pressure salespeople.
- Don't run up more debt, once you consolidate your old debt.
- Read about how to find reputable consolidation companies to help you.
Did you know?
If you are struggling with debt, you are not alone. According to the NY Federal Reserve total household debt as of Quarter Q4 2022 was $16.91 trillion. Student loan debt was $1.60 trillion and credit card debt was $0.99 trillion.
A significant percentage of people in the US are struggling with monthly payments and about 26% of households in the United States have debt in collections. According to data gathered by Urban.org from a sample of credit reports, the median debt in collections is $1,739. Credit card debt is prevalent and 3% have delinquent or derogatory card debt. The median debt in collections is $422.
The amount of debt and debt in collections vary by state. For example, in Tennessee, 32% have any kind of debt in collections and the median debt in collections is $1892. Medical debt is common and 18% have that in collections. The median medical debt in collections is $888.
While many households can comfortably pay off their debt, it is clear that many people are struggling with debt. Make sure that you analyze your situation and find the best debt payoff solutions to match your situation.