Credit card consolidation is the process of taking unsecured credit card debt and transferring it to a loan with another company. The goal of a consolidation loan is to get a better interest rate, lower monthly payments and pay off debt faster. When financial problems strike, it's easy to rush into a consolidation situation that offers short-term debt relief. But, finding the best credit card consolidation loan company requires careful research to help you take control of your finances, not just temporarily fix them.
Crunch the numbers. Calculate how much you owe with your current credit card interest rates and make comparisons. A consolidation loan should lower debt, not add to it. Ask the company to work through the numbers with you to make sure the total amount over the length of the loan is less than current credit card debt. If you're still in doubt, ask if the company will let you take the contract to a financial adviser before signing. If the company refuses, go somewhere else.
Make sure the contract details are fully disclosed and explained before signing an agreement. The consolidation company should disclose the total loan amount, closing costs and any additional fees that may not be included in the loan agreement. In addition, make sure the loan agreement states exactly when your debt will be paid.
Contact the Department of Banking or Consumer Affairs in your state to find out if an agency is licensed. In an effort to protect consumers, more state governments are requiring that debt consolidation or debt reduction companies obtain a license before they can charge consumers for their services.
Ask the consolidation company if it offers credit counseling. Reputable loan companies should offer debt management and counseling services as a part of the agreement. This includes help creating a budget and tips on avoiding future debt.
Opt for a consolidation loan that doesn't require a lien on your home. Many consolidation loan companies require collateral in the form of a home, vehicle or other property to prevent individuals from defaulting on their new loan. If your loan agreement with the new company is not met, you may be in danger of losing these assets.
Consider a debt management program. Debt managements programs have many of the same benefits as a credit card consolidation loan company without transferring debt from one place to another. Since debt management isn't a loan, there are no collateral requirements. Debt management involves working with creditors to negotiate lower monthly payments, reduce total debt owed and eliminate late fees for consumers.
Look into credit counseling as an alternative to consolidation loans. Many reputable non-profit credit counselors will work with creditors to lower monthly payments and interest rates.
Ask a local bank if it offers consolidation loans as it often has better rates than consolidation loan companies.
Never sign with a company that claims it can fix your credit fast. There is no quick-fix for credit repair.
Avoid loan companies that charge a penalty for early pay-off of loans.