The 4 Questions You MUST Ask Creditors When Consolidating Your Debt

Debt consolidation is an easy and responsible way to get a handle on debts that may be taking over your finances in a serious way. Knowing what to do and what to say can be overwhelming if you are in this type of situation, and figuring out where to start is never easy. These are some of the most important questions that you are going to want to ask a creditor when you sit down for an initial consultation about debt consolidation.

Don't let creditors scare you, arm yourself with the right questions

Question 1: What is the benefit of transferring all debts into one payment?

At first glance, pooling all of your debts into one lump sum to be paid off monthly just seems like the same problem in a different wardrobe. In fact, as a good creditor counselor will explain, consolidating your debt into one place can be advantageous on many levels including the reduction or even elimination of interest rates and clearer and easier payment options. Discuss the benefits of debt consolidation, and you will already have a better grasp of your situation.

Question 2: What are the terms of the consolidation?

While many debt consolidation services are legitimately there to help, there are always individuals who give the industry a bad name. Make sure all the terms of your program are written out clearly, not leaving out any details. Determine if there is a limit to the low or no-interest rates, clarify any additional charges or changes in terms including if you continue to use a credit card after the program is in effect and be sure to ask what consequences there are for missed or late payments.

Question 3: Is this a refinance, home equity loan or a debt consolidation loan?

Different loans and services will have varying consequences and caveats. For example, home equity loans can quickly land you deeper in debt than you were before, with the added negative possibility of losing your house. Once again, have all the terms of the loans carefully explained to you, and never be afraid to ask for a second or even third explanation if something is unclear or doesn’t seem right.

Credit Scores can go up and down, but aim to keep it high

Question 4: How will this affect your credit score?

Your credit score is a precarious number that hangs in the balance when taking out a loan and/or while in debt. The tricky thing about this number is that it can often rise and fall in unexpected ways.

As a basic example, if you have a credit card that has a maximum limit of $10,000, and you have used $5,000 of that limit, your debt would be 50%. If you take out a loan of $5,000 to pay off that debt, then you are currently owing $5,000 of a $5,000 limit, which brings your debt up to 100%! Make sure to ask the creditor how this program will affect your credit score in the short and long term.

Not all debt is created equal, which is why it’s important for you to know about the different types of debt and all of the options that are available to you.

Read our reviews of the top debt consolidation specialists to find out everything you need to know about how to get your finances in order at last.

 

About Kevin Mercadante

Kevin Mercadante is a freelance professional personal finance blogger, and the owner of his own personal finance blog, OutOfYourRut.com. He has extensive backgrounds in both accounting and the mortgage industry. Follow Kevin on Google+.

 

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