Debt Free

How can you be sure you're getting a top debt consolidation loan? To be sure there is no shortage of lenders for debt consolidation oriented loans these days. You can't be on the Internet, watch TV, or listen to the radio for more than 2 minutes without an ad for one for one these loans smacking you right on the noggin'. Just what are they trying to sell you? Oh, and by the way....Happy Friday the 13^th!

They are offering a way to roll all your outstanding high interest rate debts into a single loan, typically with a lower payment than the combined payments of all your debts before (obviously if you have debts that have a lower interest rate than the offered rate for the consolidation loan, you would just retain that existing loan(s) for it's(their) original purpose). A debt consolidation loan is usually just a cash out refinance, or home equity line of credit that you use to pay off all your other outstanding debts. Despite what some of the radio ads say, they don't eliminate your debt, they just move it, and possible allow you to eliminate it faster than you otherwise would have.

There's one thing to be aware of before you begin to solicit offers for a loan. There is a scam that's becoming much more prevalent with the rising tide of credit problems and foreclosures called the advance fee loan scam. You'll be asked to pay huge fees in order to secured a guaranteed loan. Here is the FTC warning on these scams -

“Advance fee loan scams prey on consumers who may be under financial duress and may be seeking quick and easy loan approval and funding. The scam typically involves the lender making false promises to arrange for a loan in return for fees paid upfront by the loan applicant. Scam artists may even design Web sites and online loan applications giving the appearance that the company is legitimate. “

Make sure that the company that you are dealing with is a bona fide financial services firm with a proven track record. There are hundreds of real lenders in the marketplace, so finding a good one should not be difficult, just be sure and do your due diligence's.

So, how do you go about separating the wheat from the chaff when you're looking for a consolidation loan? Can one of these loans really help you get debt free? Will you pay less in interest and fees with one of these loans than you will if you just paid for your credit cards (and other debts, but the majority of these loans go to pay off credit cards) and didn't get a loan? You'll certainly want to answer these questions before you get a loan.

First of all yes, typically you will pay a lower interest rate if you transfer your debt from credit cards, which are unsecured, to a debt consolidation loan, which is secured. The mere fact that the consolidation loan is secured, typically by the borrowers home or other real estate, means that the lender faces lower exposure to risk, which is reflected in a lower interest rate to the borrower. Many people get confused by the fact that they are paying a lower interest rate, however.

Just because you are paying a lower interest rate doesn't mean that you'll pay less in total interest. That is because the term of a debt consolidation loan is much longer than the term to pay off most credit cards. If you make the minimum payment and stretch out the payment schedule to the maximum allowable time, you could actually pay more in total interest. This is because, while each interest component of each payment is lower, you will make many more payments. So, one key to getting the best debt consolidation loan is to not only search for the best interest rate, but to make the payments in such a way that you really do pay less in total interest payments.

Carefully compare the fee structure of the loan offers you receive to help determine which are the top loans. There are many fees that you may be charged, such as origination fees, processing fees, appraisal fees, credit report fees, and other fees. Not all loans will charge the same fees and not all fees for the same thing will be at the same rate between the different loans. The only way to determine which loan has the best fee structure is go through the fee schedule with a fine toothed comb.

If you have outstanding credit you can get a personal loan you can use for anything you'd like, including debt consolidation. With a personal loan you will not have to put any security up for collateral, so you won't be in danger of losing your home should you run into unforeseen financial problems. You will usually pay more than you would for a secured loan, but less than you're paying on your credit cards this way. This solution is only available for borrowers with premium credit. Keep in mind that you will also not be able to receive any tax benefits with a personal loan, as you may be able to receive if you got a cash out refinance or home equity line of credit to use for debt consolidation.

One note here, and it is a very important one:

• Make sure that the circumstances which caused you to go into debt have been eliminated, because you'll rapidly get into serious financial trouble otherwise.

In short, here is how you can be sure you are getting a top loan when you're shopping for a debt consolidation loan:

• Compare interest rates, including the simple interest and the (APR), which takes into account interest , fees and other charges.

• Compare fees – Look at the total amount of loan and service fees you'll be charged, and when you'll be required to pay them. Remember that any fees that you roll into the loan will accrue interest over the live of the loan, multiplying them substantially.

• Look at the total interest in dollars you be charged over the life of the loan

• Verify if the loan offers any tax benefits – Refinances or some home equity loan products will offer these benefits. To be sure, check with the IRS.

• Check the lender's track record. How long have they been in business, and do they have a good reputation?
  
  

One of these loans may or may not be the best solution to more quickly get you out of debt. This guide should help you get one of the top debt consolidation loans. But remember, getting debt free is up to you.