How to Know if a Debt Consolidation Program Is Legit

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Oxford Languages tells us the word consolidate means to “combine (a number of things) into a single more effective or coherent whole.” It makes sense, then, that the objective of consolidating debts would to be to take multiple obligations — often with high interest rates — and streamline them into a single balance at a lower interest rate. Simply put, the goal is to make it easier to pay your bills every month and reduce how much you pay in interest charges.

Sounds promising, right? Before you commit to any form of debt consolidation though, make sure the lender with whom you’re working is legit. There are many reputable, legitimate options for debt consolidation — but there are also scammers hoping to take advantage of well-meaning borrowers trying to get out of debt.

Here’s more on how to figure out if a debt consolidation program is legitimate.

Different Forms of Debt Consolidation to Consider

First, it helps to understand the different forms of debt consolidation available to you and a bit about what each of them entails.

The first approach is opening a balance transfer credit card and moving your existing credit card debt(s) to the new card. This allows you to take advantage of a low-interest or zero-interest promotional period, usually between six and 18 months. Getting the most from a balance transfer entails carefully comparing different companies and their offerings — then reading the fine print to make sure you understand the terms, conditions, fees and penalties.

Another way to consolidate is to take out a personal loan from a bank or online lender, then use those funds to pay down unsecured debts — like credit card balances — in one fell swoop. The focus then becomes working down the loan balance in fixed installments month by month, ideally paying less in interest over the course of the entire loan than you would making payments on all your current, separate debts.

Another way to consolidate debt is to enroll in a debt management plan (DMP) with the assistance of a credit counselor. If you go this route, you’ll start making one monthly payment to the credit counseling agency, trusting them to allocate those funds to your creditors. These professionals may be able to negotiate you better terms on your loans if you stick with the DMP process for three to five years.

Legitimate Debt Consolidation vs. Debt Relief Scams

The golden rule of Bills.com debt consolidation experts; be wary of any organization that appears out of the blue full of promises to help you escape your current debt burden — even promising you certain results.

Debt consolidation can help borrowers get out of debt for less money and with less headache, but no results are guaranteed. There are too many factors at play to make any realistic promises. Legitimate companies will offer information about the potential rewards and potential risks; disreputable companies tend to guarantee winning results while glossing over potential pitfalls.

According to WalletHub, here are some other potential debt consolidation scam red flags:

  • An organization’s website isn’t secure: Look for cybersecurity encryption meant to keep customers’ data safe and steer clear of any less-than-secure sites.
  • A debt consolidation company asks for payment up front: A loan origination fee through a legitimate lending institution is one thing; asking for payment before services are rendered is another. This is actually illegal in the debt relief industry under Federal Trade Commission regulations.
  • A consolidation firm doesn’t give you all the info you need to decide: In no way should you feel pressured, rushed or confused. Reputable firms will provide ample information so you can make an informed decision — including benefits, drawbacks and what to expect once you enroll.

A legit debt consolidation option will avoid all the aforementioned red flags, and have enough information available about services and reputation online so you can make a confident decision.

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