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How to Choose a Debt Consolidation Company

4 minute read A man is sitting and looking at his laptop and holding his credit card as he works on selecting a debt consolidation company with his partner.

Disclaimer: Upstart is not a financial advisor. The following content is for informational purposes only.

Which scenario is most like your situation?

Scenario 1: You look at a stack of bills and loans and wish the stack was a lot smaller? You make payment after payment each month and the bills just keep coming. 

Or …

Scenario 2: You look at one bill that has all of your debt combined and write one check or make one online payment—and you’re done paying down your debt for the month.

Which is better? 

For many people, having only one bill to pay is easier to manage than paying multiple bills for the same amount of debt. If you’re living with Scenario 1, or something similar, you could be a candidate for debt consolidation.

Debt consolidation can help you pay down multiple outstanding loans by combining them into a single balance. If you’re looking to consolidate your debt, many companies offer debt consolidation loans or credit card balance transfers. Though choosing from the best debt consolidation companies for the job can be a process all itself. 

Since you shouldn’t trust just anyone with your financial future, choosing the right debt consolidation company is an important decision. Let’s take a look at some factors to consider before you make your final choice. 

Debt consolidation vs. debt settlement: Understanding the difference

Some companies may claim they can help you with debt consolidation, when they’re really offering debt settlement. The two terms may sound similar, but the key difference is in how your debt is paid off.

Debt consolidation is the process of getting a loan that pays down all your outstanding debts and replaces them with a single balance you’ll pay down over time. It can be a helpful financial tool for paying off credit card debt quickly, for example.

Debt settlement involves having a portion of your debt forgiven or canceled, usually by working through a company that negotiates directly with your lenders or creditors. Working with a debt settlement company can be costly for several reasons:

  • Debt settlement companies can charge 15-20% of your total debt in service fees.
  • Settlement companies typically ask you to stop making payments during the negotiating period, which can cause late fees and interest to accrue if your creditors refuse the settlement.
  • Missing payments during the negotiations can hurt your credit score or lead to a default if the settlement doesn’t go through.
  • Debt that’s canceled can be counted as income for tax purposes, which can cost you at tax time.

There are risks associated with debt consolidation as well, so consider carefully which process would work best for you. 

Is the company trustworthy?

The most important factor in choosing a debt consolidation company is whether you can trust them with your personal information. Applying for a debt consolidation loan requires you to submit your Social Security number, account numbers, and other personal details. A trustworthy company should have certain security measures in place to protect their customers’ finances. 

Here are a few ways you can tell if a company is safe to work with:

  • Search for the company on the Better Business Bureau website—where you can read reviews and complaints—and see if the company has been involved in any legal disputes.
  • Is the company registered with the Financial Counseling Association of America or the National Foundation of Credit Counseling? If not, then it probably isn’t the most reputable business to work with.
  • Check that the company has security measures like computer safeguards and secured file.
  • Request to see a certificate of proof if a company claims to be a nonprofit. A reputable company should be able to show you this document.
  • Avoid businesses that ask for an immediate signing, or promise a fast and easy solution to your debt problems. 

Do they offer what you need?

Common debt consolidation offerings can include personal loans and balance transfers. Before signing with anyone, be sure what they’re offering is a good fit for your needs. The right debt consolidation company can offer you the following:

The loan amount you need

The best debt consolidation loans are large enough to pay off all of your debts, so make sure a company can offer the amount you need. 

Good interest rates

A perk of debt consolidation is the possibility of getting an interest rate on your new loan that’s lower than the current rate on your other debts. But watch out—if the company charges the same or higher rate than you had before, it could end up costing you more per month.  

Agreeable loan terms

The terms of your loan can make a difference in how manageable your repayment process is. Make sure the monthly payments, repayment period, and other details are to your liking. 

Affordable fees and costs

Debt consolidation companies can charge loan origination or balance transfer fees and closing costs. Some of these fees may be unavoidable, so make sure you’re not spending more than you’d save. 

Do you qualify to get what you need with them?

Your credit score can play an important part in whether you qualify for debt consolidation. Having fair to good credit can qualify you for favorable rates and terms, while having poor credit can make it harder for you to qualify at all or get decent rates and terms. Take a look at your credit score and compare it to a company’s credit requirements to see if you qualify for what you need. 

What flexible funding options do they offer, if any?

Life can be unpredictable, and your situation could change at any time. Some debt consolidation companies anticipate this by offering flexible funding options like adjustable loan terms and customizable repayment options. Ask any companies you’re considering about their flexible funding offerings.

Do they offer accessible help?

The top debt consolidation companies will have an easily accessible help center or customer service representatives. Look for businesses that offer these services:

  • Multiple methods of contact, such as a phone number, email address, live chat options, or a submittable contact form on their website. 
  • Reasonable hours of operation when customers can contact the customer service team. 

It can also be a good idea to look up customer service reviews from third-party websites to see what people have said about their experiences. 

Do they offer tools beyond debt consolidation to help you with your finances?

Another sign of a great company can be additional services they offer. Reputable companies may have websites that feature educational content or a blog offering tips and tricks for managing and improving your finances. Having a mobile smartphone app is also a plus, so you can manage your finances on the go. 

The bottom line

Debt consolidation can be your ticket to paying off all of your debt, if you can find the right company to work with. Get started by checking out Upstart’s options.

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