All week we have discussed the benefits of debt consolidation loans in Canada; today we talk about debt consolidation loan scams, and how to avoid them.
You’ve seen the offers — ‘real’ debt consolidation programs that offer to reduce your debts with teasers like
- fast and easy solutions
- 0% interest
- poor credit is not an issue
Debt Consolidation Interest Rate Scams
The first 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 second common questionable offer is 0% interest. If you are signing up for a true debt consolidation loan there will of course be some interest charge. A good debt consolidation loan will lower your overall interest costs by transferring your high interest credit card debt to lower cost credit. But the cost will not be 0%.
High Up Front Fees
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.
Another fee 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.
Your Credit History
If you are applying for an actual debt consolidation loan (new debt) your credit history will affect your ability to qualify for a loan and the cost. Victims of debt consolidation scams usually end up further in debt, out of pocket for up front fees and damage their credit further.
Avoid debt consolidation loan scams. Read the fine print, ask questions. Ensure that you know all your debt relief options before signing on the dotted line.