Always shop around.
Debt consolidation loans are offered by most financial institutions, including banks and credit unions. Financing companies also offer debt consolidation loans, but these are usually more expensive because they are often a lender of last resort for those with poor credit. There are even companies that specialize in low-credit or no-credit debt consolidation loans. These types of loans however, can be the most expensive option.
Always shop around and compare rates among lenders. Talk to at least three different providers and don’t hesitate to ask for a lower interest rate or better payment terms.
Even if your own bank is willing to help you out, you should shop around for the best rate and terms you can get. Your goal is to find a reputable institution that will offer you the best deal possible.
If your bank says no, ask why. You might be able to tweak your situation and, as a result, your loan might be approved a few months down the line.
What Questions To Ask
If you visit with a non-traditional lender about debt consolidation, you should ask some important questions; don’t be shy about asking friends and family members for a referral, or about researching lenders online. The Better Business Bureau is a good place to start.
- How long have you been in business and can you provide some references or testimonials?
- Is your company regulated and if so, where?
- Are you listed with the Better Business Bureau? Be sure to check the lender’s reputation for yourself.
- Are you talking about a consolidation loan or a debt settlement program?
- Do you charge up-front fees before the loan is approved?
- What are your average interest rates?
- How much do you charge for an application fee?
One option is to talk with a credit counsellor, but if you choose this route, make sure the companies or agencies you select are both reputable and accredited. Besides seeking referrals from friends and family members and checking with the Better Business Bureau, you should ask these questions:
- Is the agency for-profit or not-for-profit? If the answer is not-for-profit, ask for its charitable registration number.
- Find out if the agency is registered with an accredited Credit Counselling Association.
- Ask if the person you will be working with is an accredited counsellor.
Licensed Insolvency Trustees
You might want to visit with a Licensed Insolvency Trustee. If so, here are some things you should keep in mind.
- All trustees in Canada are licensed by the federal government and are listed on the government website here. Most are also listed with the Better Business Bureau.
- You should never pay a fee to see a Licensed Insolvency Trustee. Almost all of them offer a free consultation.
Raising a Red Flag
If you run into any of the following situations while meeting with a potential debt consolidation lender, you should end the conversation and continue your search for a debt consolidation provider elsewhere.
- You are asked to pay any fees before your loan or consolidation program is in place.
- The company or agency offers you an option you weren’t expecting. For instance, some companies advertise that they provide debt consolidation loans but instead they offer you a debt settlement program. There is a significant difference between the two.
- The company says you need to see the “court officer.” This generally means they will collect their fee and send you on to a trustee. You could have gone to the trustee first, without paying the fee.
- They pressure you to sign right away.
- You feel uncomfortable with the program they are offering.
Remember Your Goals
Regardless of who you decide to do business with as you strive to solve your debt problems, you should remember the five goals you set for yourself.
Lower Interest Rates – Don’t forget to include application fees and processing fees when you determine who is offering you the best deal. Read the fine print, and make certain you are paying a lower interest rate than you were before you consolidated your debt.
A Single Payment – One of the best features of any consolidation option is that you will be making one payment every month, rather than trying to decide how much you should pay to each of your creditors.
Lower Monthly Payments – There are two ways to reduce how much you have to pay your creditors each month: Lower your interest rate or extend the term of your loan so you can take longer to pay off your debt.
Debt Settlement – Regardless of which option you choose, your goal should be to eliminate your debt within a reasonable period of time.
Creditor Protection – If all else fails, you’ve missed so many payments that your creditors are calling you at home and you’re facing the specter of your wages being garnished you may need a solution that provides legal protection from your creditors.
More information about debt consolidation, and a list of reputable debt experts, can be found here.