All week we have discussed the benefits of debt consolidation loans; today we talk about debt consolidation loan scams, and how to avoid them. We discussed the hidden debt consolidation loan trap (a loan doesn’t reduce your debt; you just replace one debt for another). That’s a trap; let’s discuss actual scams.
The most common scam is high interest rates. Unless you are very desperate, there is no reason to pay 30% or more for a loan. Avoid high interest rates. Use a debt consolidation loan calculator to determine the cost of your loan before you sign anything.
The next scam is high up front fees. If a debt “broker” needs a $1,000 payment up front, run. Legitimate lenders do not charge a fee until the loan is approved, and you have the money.
The final scam to watch out for is high insurance charges and service fees. The lender may offer a reasonable interest rate, but if they add to the cost a life insurance or disability insurance fee, or other service charges, the cost may become excessive. Read the fine print, ask questions, and avoid debt consolidation loan scams.
