Finding the Best Credit Card Debt Consolidation Loan

A credit card debt consolidation loan can help you escape the pressures of collections agencies, save your credit and save you a good deal of money. However, whether or not all of these goals are achieved depends on the loan itself. Some debt consolidation loans can end up doing more harm than good. Look for these features to assure your loan is beneficial and affordable.

Low Interest Rates

The number one thing to look for in any consolidation loan is a low interest rate. With a consolidation loan, you are paying off your existing debts and adding your balance to a new loan. If the interest rate on your new loan is higher than the rate on your old debt, you have received no real benefit. You should never consolidate to a higher interest loan. However, with a good consolidation loan, the new lender offers you a "wholesale" interest rate for consolidating so many loans at once. Since you are moving to a higher limit loan with the new lender, the lender will ideally offer you a lower interest rate. You will benefit, and the new lender still profits because your payments will be high due to the limits of your loan.

Low Financing Costs

Some consolidation companies get creative with their interest rates by reducing the stated rate. However, they apply the reduction in another place. For example, the lender may try to raise initiation fees, online payment fees, fees to pay the loan early and similar issues. Always read the fine print in a contract to look for any hidden consolidation fees.

Restructuring Options

When you first consolidate, your immediate needs will be to avoid collection, save credit problems and otherwise deal with the short-term consequences of credit card debt. However, once you recover from this initial set back, your needs will change. For example, you may have credit card debt because you were out of work for an extended period of time. In the future, you anticipate getting a new job. You would then be able to make much higher payments toward your debt balance. Look for a consolidation loan that has refinancing options in the future without huge penalties.

Credit Repair Services

If you go through the process of consolidating loans, you should receive more than a bill. Determine what the new lender is going to do to help you actually repair your credit and grow financially from the situation. The best credit card debt consolidation companies have existing relationship with your current lenders. The lenders can negotiate with your current lenders to avoid many fees that would typically come out of entering a debt servicing arrangement.

For example, when you close your credit cards at once, you may see your credit score drop. However, your lender may be able to negotiate with creditors to simply have any record of your credit card removed permanently from your credit report. This will erase any history of missed payments. Ask your potential consolidation lender if credit repair and negotiation is an option.

How much do credit card debt consolidation loans cost?

There are several hidden fees associated with credit card debt consolidation loans. The first is the origination fee. It is used to pay your loan agent. This fee is typically between 1 and 5 percent of the total amount you consolidate. There will also be an interest rate, which should be low enough to counter the cost of consolidating. If your loan costs plus interest will exceed the cost of paying your loans in full as they stand today, be very wary of taking the loan consolidation loan. You may find yourself in a bad financial situation after the transfer.

Are credit card debt consolidation services worth the expense?

Credit card debt consolidation services should be designed to save you money, but few really meet this goal. In many cases, the expense of consolidating and paying off your debts under a new loan will be equal to, or greater, than the cost of paying them off. The consolidation services are only worth the money if you are facing a drastic financial problem, such as foreclosure, bankruptcy or default on your loans. The service may also pay for itself if the company you work with has excellent credit repair options as well.

How can I tell if a credit card debt consolidation service is a scam?

Unfortunately, it can be hard to know for sure whether you are working with a legitimate credit card debt consolidation service. However, there are some basic methods to expose fraud early in the process. Start by researching the address, phone number and website URL of the company. All should be registered to the same organization, and all should be registered in a state or local database such as the Chamber of Commerce as well. If you have any doubts after this initial research, ask for a recommendation from your bank, financial advisor or attorney.

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