Be Aware When Getting a Debt Consolidation Loan

Buy Only What You Need

Some services promise not only to consolidate your debt, but also to provide you with insurance and perhaps even investments, while at the same time lowering (or at least not raising) your total monthly payment. You should be wary of this type of service.
First, the odds are that if you were in a good position to make additional investments, you would not be in the market for a debt consolidation loan. You will likely be better served by applying the "insurance" or "investment" payments to your debt.
Second, the commissions associated with investments and insurance policies can be extremely high. Often the reason these services are trying to sell you additional products is so that the salesman can pocket an additional, substantial commission.
The best approach for most people who choose to consolidate their debt will be to obtain the best possible debt consolidation loan they can find, and to examine their other financial needs only after they have resolved their prior debt situation. Also, most people will benefit from using a professional financial planner, as opposed to buying insurance or mutual funds through a "debt consolidation" salesperson with little actual knowledge of investment, and who offers a much smaller range of investment options.

Beware of Multilevel Schemes

There are some debt consolidation schemes that are sold through multi-level marketing schemes. While there may be a certain comfort level in purchasing a financial plan from a friend, co-worker, or relative, consider this: What are the odds that this person truly is an investment professional? Most multi-level schemes offer very limited options to the customer, and all require very high commissions for the salesperson and the salesperson's "upstream" - those who sponsored the salesperson into the organization.
You should treat a multi-level program like any other option - see how it stacks up against your alternatives, then select the one that is in your financial best interest. But don't be taken in by the fact that you like the person who is selling the program, or the suggestion that you will be doing them a favor - many of these programs offer the "potential for six figure income", and your friend intends to profit handsomely by convincing you to sign up for their service.

Posted in: FINANCE AND LAW