How to Choose the Best Debt Consolidation Loans


A debt consolidation loan is a way to combine numerous -- if not all -- of your debts into one payment. The company that holds the loan is responsible for doling out payments to your creditors. This not only ensures that some of the debt is paid off, but also gives you less to worry about with just one company to pay each month. However, it is important to choose wisely when signing up with a company for a debt consolidation loan.

Conduct a thorough check of the company offering the loan. Numerous debt consolidation loans are actually scams meant to take your money without paying off a thing. Check the Better Business Bureau and assess the company's standing and read over any complaints lodged against it. The Federal Trade Commission (FTC) recommends searching the company's name and the word "complaint" to see what you get.

Look for the loan with the lowest fees. The more fees you pay out for the loan, the more it negates the purpose of it. You are taking out a debt consolidation loan to eliminate or at least significantly lower your debt; if you are paying exorbitant fees in return, then you may as well use that fee money to pay down your debts yourself.

Consider the terms of the loan. For example, decide if you want a five-, 10- or 15-year loan. Inquire about the interest rate and how it may fluctuate according to your credit overall. For example, if you fall behind on your car payment, ask if the negative report on your credit will result in a fluctuation in your interest rate on the loan. Opt for the loan that offers you the best and most steady interest rate.

Avoid the debt consolidation loan company that tells you not to communicate with your creditors. This is a huge red flag and any company that asks you to do this should be taken out of consideration. You should be able to check in with your creditors at any time and ask for the balance of your account, which should be decreasing.

Opt for the loan that doesn't require your home as collateral. If you put your home up as collateral for a debt consolidation loan, you may lose it if you fall behind on payments. However, if you have other assets to use as collateral -- such as a vehicle, stocks or other valuable personal property -- you may be able to negotiate better terms on your loan, so keep that in mind as well.

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