Red flags concerning debt consolidation services

There are certain warning signs that a debt consolidation service that you are considering is too good to be true:

• Guarantee that you will receive a debt consolidation loan. Most legitimate debt consolidation services will not promise that you will get a debt consolidation loan prior to see your credit history and before you fill out an application. Watch out for these kinds of promises!
• Request personal information over the phone. Be wary of companies that ask for such personal information as credit card numbers, social security numbers or bank account numbers and routing information over the phone – especially if you haven't been approved for a debt consolidation loan or for the program.
• How was the ad presented? In many cases, scams claiming to offer debt consolidation service are found in Classifieds, rather than as regular display advertising. Also, be wary of cheaply produced ads on local cable stations and radio stations. In some cases you have to call expensive numbers in or to get a "consultation."
• Are documents delivered with an overnight service or a "special" courier? In many cases scam artists use these types of deliveries rather than the postal service. This is because it is a federal offense to commit fraud through the United States mail system. Send documents this way – without using the services of the postal service – can be a red flag.
• Does the company ask for an advance payment before issuing the loan? This is a major red flag. While many loan companies charge a small application fee (usually between $35 and $50) to cover the cost of a credit check and administrative work, and "advance" payment is not part of the plan. If you are asked to make a large payment upfront, watch out!

Characteristics of a reputable debt consolidation service

There are also some general practices of a reputable debt consolidation service. These are things you can look for as you shop around, and items that you can use to compare debt consolidation services and choose what will work best for you. Practices common to debt consolidation services:

• Application fee. As mentioned above, this is common. But you want to make sure that the fee is reasonable. And some debt consolidation services actually waive the application fee.
• Require acceptance of loan terms. Most reputable companies will give you the terms of the loan, and require you to accept them. While some companies allow a verbal acceptance, a written acceptance is preferred. You should carefully review the loan terms, and compare them with the terms offered by other debt consolidation services. Also, make sure you keep a copy for yourself in a safe place.
• Credit check. Most reputable debt consolidation lenders require a credit check. While you do not have to have great credit, most debt consolidation services like you to at least have fair credit – or credit that is at the high end of "poor." You may have to pay a fee for the credit check. Some companies, though, will waive this fee on your behalf.

Be aware that some debt consolidation services require some sort of collateral, usually your home. This means that you are actually taking the loan out against your home. If you can find a debt consolidation service that will let you consolidate your debt without collateral, that is preferred.

Also, you should understand that many debt consolidation service charge high interest rates and fees. While it can be nice to get all your debt in one place, making it easier to manage and pay off, be aware that a portion of your payment goes to fees and interest. You should check companies and compare their interest charges and other fees so that you get a company that will help you reduce your debt faster.

Do your homework and choose the debt consolidation service that best fits your needs and that will cost the least in the long run.