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Debt Consolidation Companies

The term "debt consolidation" is often misused or used to describe a variety of situations, so even the term "debt consolidation company" can refer to different company categories. It is critical to identify the different categories and understand the services that are offered within each category, because the dissimilarities can be extreme.

Unfortunately, there is a lot of confusion and approximation disseminated on this subject, sometimes with the intent of misrepresenting the type of debt relief service that is being offered, thus preventing the consumer from comparing the alternatives and ultimately make an informed decision.

Let's identify once and for all the different categories of companies that are too often improperly grouped together under the generic label of "debt consolidation company":

In addition, we'll provide some useful tips on choosing a debt consolidation company:

Companies providing debt consolidation loans

Companies that provide loans that can be used for debt consolidation are typically banks, credit unions, peer to peer lending companies, savings and loans and various financial institutions. For 401k loans, the company will be the investment or brokerage firm holding your retirement account. For life insurance loans, the company will be the life insurance company from which you purchased your policy.

Consolidating your debt by taking out a new loan with better terms to pay off your existing accounts with worse terms (such as higher interest rates) should be considered the standard form (if not the only true form) of debt consolidation.

These companies don't necessarily offer a loan which is specifically referred to as "debt consolidation" or "bill consolidation" loan. But the name given to the loan doesn't matter to you. What you are looking for is simply a loan, which is offered regardless of the use you will make of the money borrowed. The fact that the purpose of this loan is to consolidate your debt doesn't change the nature of the financial product these companies will offer you, or whether you qualify or not for it, so lenders don't usually care what you're going to use the loan for. The loan can be secured (such as a home equity loan) or unsecured (such as a personal loan). Which one you will choose to consolidate your debt will depend on your personal financial situation, objectives, and risk tolerance. Explore the decision making process here.

Don't apply for a loan with multiple companies all at once, as this will hurt your credit score. Instead, shop around for the best rates and terms, ask about eligibility, and find the most convenient loan before applying. Following is a list of companies that provide loans, from big national banks to community banks, from credit unions to peer to peer lending companies:

Big National Banks

Bank name Phone number
Chase 1-877-242-7372
Bank of America 1-800-933-6262
Citi 1-877-362-9100
Wells Fargo 1-800-869-3557
U.S. Bancorp 1-800-872-2657
HSBC 1-800-975-4722
PNC Bank 1-888-762-2265
Capital One 1-800-926-1000
TD Bank 1-888-751-9000

Local Community Banks

Community banks are for-profit financial institutions that have a focus on giving back to the community. They tend to have a more common sense and personalized service, so they can be a better option for you compared to going with a big national bank. The Independent Community Bankers of America offers an online tool to locate the community banks in your area.

Credit Unions in your area

Credit Unions are non-profit financial companies that tend to offer better rates and lower fees on a debt consolidation loan compared to traditional banks. They can also be more understanding of your personal situation and flexible when it comes to the loan approval process. You must join a credit union before you can get a loan. Membership eligibility is determined by your residence in a defined community or your ties to a specific profession or religion. It is advised you visit the credit union branch and meet face to face with a representative. Visit asmarterchoice.org to find a credit union in your area.

Credit Unions anyone can join

There are over 70 credit unions which extend membership eligibility to anyone who makes a small one-time donation (between $5 and $15) to a sponsored charity. Here is a partial list of selected credit unions open to anyone:
Name Phone number How anyone can join
Alliant Credit Union 1-800-328-1935 $10 donation to Foster Care to Success
Connexus Credit Union 1-800-845-5025 $5 donation to a partner charity
Consumers Credit Union 1-877-275-2228 $5 donation to CCA
Lake Michigan Credit Union 1-800-242-9790 $5 to the West Michigan Chapter of ALS
NASA Federal Credit Union 1-888-627-2328 $15 fee to join the American Consumer Council
Pentagon Federal Credit Union 1-800-247-5626 $15 donation to Voices for America’s Troops
CommunityWide Credit Union 1-574-239-2700 donation to a partner charity
GTE Financial Credit Union 1-888-871-2690 $10 fee to join CUSavers
Self-Help Credit Union 1-800-476-7428 $20 minimum donation to Self-Help charity
NuVision Federal Credit Union 1-800-444-6327 $15 fee to join the American Consumer Council
State Department Federal Credit Union 1-800-296-8882 $15 fee to join the American Consumer Council

Military Banks and Credit Unions (restricted membership)

Peer-to-Peer Lending Companies

Peer to Peer (P2P) Lending consists of an online platform that connects individual borrowers with individual lenders and investors. Peer-to-peer loans are unsecured personal loans that can be used for debt consolidation. P2P Lending companies are for-profit businesses that act as intermediaries in exchange of a one-time fee (usually a percentage of the loan amount), verifying borrowers' identity and financial profile (which includes performing a credit check) in addition to processing payments. Because of the low overhead, they can usually provide loans at lower interest rates than traditional banks and financial institutions. In the United States there are essentially two Peer to Peer Lending companies:

  • Prosper
    Prosper offers unsecured loans from $2,000 to $35,000, with loan terms of 3 and 5 years. APRs range from 6.73% to 35.36% fixed interest rate, depending on your Prosper Rating (a combination of your credit score from Experian and other factors). The fee depends on the amount borrowed, term of the loan, and your rating, and ranges between 2% and 5% of the amount you borrow. There are no (full or partial) prepayment penalties.
  • LendingClub
    Similarly to Prosper, LendingClub offers unsecured loans from $1,000 to $35,000, with loans terms of 3 and 5 years. APRs range from 6.03% to 29.99% and the fee ranges from 1.11% to 5.00% of the loan amount, depending on your loan grade (which is based on your credit score). There are no prepayment penalties or fees.

Companies offering Balance Transfer Credit Cards

Banks and financial service companies sometimes offer credit cards with favorable rates on balance transfers. A credit card balance transfer can be a way of consolidating your debt only if used within a clearly defined and realistic short term debt repayment plan. Below is a list of companies with a direct link to their credit card offerings:

Credit Card Company Products offered Phone number
CitiBank Citi Balance Transfer Cards 1-800-347-4934
JPMorgan Chase Chase Balance Transfer Cards 1-800-432-3117
CapitalOne CapitalOne credit cards 1-800-955-7070
Discover Card Discover balance transfer 1-800-347-2683
Barklays Bank Barklaycard 1-302-622-8990
Simmons Bank Simmons Credit Cards 1-800-272-2102
Pentagon Federal Credit Union PenFed credit cards 1-800-581-7786

Companies providing debt management programs

Companies that provide debt management programs (DMP, or debt management plans) are credit counseling agencies, typically chartered as nonprofit organizations (cf. non-profit debt consolidation and credit counseling).

When you enroll in a debt management program, you make a single money payment to the agency, which in turn pays your creditors. The credit counseling agency will attempt to negotiate better terms (such as lower interest rates and fees) with your creditors in order to lower your monthly payment amount. You will still have to pay the full amount of your debt principal.

During the period you are enrolled in a Debt Management Plan (typically between 3 and 5 years) your credit report will have a notation to this regard and you will not be granted new credit. However, your credit score per se will not be affected.

Local agencies accredited with NFCC

The first place to consult is the National Foundation for Credit Counseling (NFCC) which is the largest and oldest (established in 1951) nonprofit credit counseling organization. NFCC members are known as Consumer Credit Counseling Service (CCCS) or by other names. To be accredited with NFCC, an agency should uphold high standards and ethical practices.

There are more than 600 community-based offices around the United States. You can find a a NFCC nonprofit member agency by calling 1-800-388-2227, using the online NFCC Member Agency Locator to find the nearest agency in your area.

National agencies accredited with NFCC

Although face-to-face counseling is usually considered a more effective and thorough way to assess one's financial situation and suggest a personalized solution as opposed to having to do it over the phone for lack of a local office, studies have found that there doesn't appear to be a difference in outcome between telephone and face-to-face delivery of counseling services [1]. You might therefore also consider going with a national agency even though it doesn't have an office in your area. Here is a list of companies accredited with the National Foundation for Credit Counseling (NFCC):

  • Apprisen
    Established in 1951 and based in Ohio, Apprisen is the oldest non-profit consumer credit counseling agency in the United States providing its debt management programs and counseling services through over 50 offices in 10 states, over the Internet, or over the phone. Better Business Bureau (BBB) rating: A+
  • Novadebt (also known as Garden State Consumer Credit Counseling)
    Established in 1991 and based in New Jersey, Nobadebt prides itself of being guided by an unrelenting commitment to quality customer satisfaction. BBB rating: A+
  • GreenPath Debt Solutions
    Established in 1961 and based in Michigan, GreenPath offers in-person services at 50 branch offices in 11 states over the phone or online. In addition to NFCC membership, GreenPath is a member of the Association of Independent Consumer Credit Counseling Agencies (AICCCA), is accredited by the Council on Accreditation (COA), is a U.S. Department of Housing and Urban Development (HUD) approved housing counseling agency, and a U.S. Department of Justice approved provider of bankruptcy counseling and education. GreenPath Inc. has a Better Business Bureau rating of A+
  • InCharge Debt Solutions
    Established in 1997 and based in Florida, InChage has worked with over 1.2 million clients. In addition to NFCC, InChage is accredited by the Council on Accreditation (COA) and is a HUD-approved housing counseling agency. InCharge Debt Solutions Inc. has a Better Business Bureau rating of A+
  • Springboard
    Established in 1974 and based in California, Springboard. In addition to being member of NFCC, Springboard is member of the Association of Independent Consumer Credit Counseling Agencies (AICCCA), accredited by the Council on Accreditation (COA), and a HUD-approved housing counseling agency. Springboard Nonprofit Consumer Credit Management, Inc has a Better Business Bureau rating of A+

When contacting an agency, ask about their fees.

Companies providing debt settlement services

Companies that provide debt settlement services are offered by for-profit financial companies operating under a variety of names that can evoke everything from "National" and "America" to debt "help", "solutions", "relief", "freedom."

Although these companies might use the term "debt consolidation" freely when they describe their services, what they are offering is actually debt settlement, which is an alternative to debt consolidation. These are two distinct debt relief options. With debt consolidation you still pay the entire amount of your existing debt and keep your credit report intact. With debt settlement, a reduction of your debt's principal balance is instead attempted (more than 90% of the times without success [2]), and your credit will be typically ruined in the process.

How is debt settlement done? Your creditors stop receiving payments (with all the negative consequences that can arise from this action: late fees, penalties, collection procedures, damage on your credit report) while you send a monthly payment to the debt settlement company. Once you have defaulted on your debt by not making payments for a long enough period of time, the debt settlement company approaches your creditors and attempts to settle the debt for a lower amount (the amount they have accrued from your payments to them). This attempt will almost always fail (only minor accounts will be settled, or none at all) and you will be left deeper into debt, with less money, potential collection procedures and lawsuits, and a damaged credit score. If it is successful, you will have managed to reduce your debt balances at the cost of a bad credit report for at least 6-7 years.

We will not list debt settlement companies because they shouldn't be considered debt consolidation companies in the first place, as they offer a different service.

3 things to know before you even consider hiring a company

1. Identify what service they are really offering

The first and essential step when assessing a debt consolidation company is to understand what type of service they are providing:

  • is it a loan? (which you'll use to pay off your current debt)
  • is it a debt management program/plan (DMP)? (under which they'll attempt to negotiate lower rates on your debt)
  • is it a debt settlement/negotiation program/plan/service (DST)? (in which they'll attempt to negotiate lower principal balances on your debt)

2. Understand the consequences of each type of service on your credit

  • Loan: has no consequences on your credit score and report (only a small temporary decrease for the application inquiry and an increase for a lower debt utilization rate resulting from keeping your existing credit card accounts open even after you pay them off)
  • Debt Management Plan (DMP): has no consequences on your credit score, but your enrollment in the DMP will be noted on your credit report and you will not be able to get new credit during the period you are enrolled in the program (3-5 years)
  • Debt Settlement: will damage your credit score as your accounts go unpaid in order to convince creditors to settle the accounts for lower balances.

3. Know your chances of success

  • Loan: unknown success rate
  • Debt Management Plan (DMP): an estimated 25% to 50% of plans are completed, around 20% leave for self-administration, with the rest simply drop out or file for bankruptcy. Credit counseling organizations earn monthly fees from you and a "fair share" payment from your creditors (calculated as a percentage of the repaid amount). Since DMPs are the main revenue source for credit counseling agencies, there is an incentive to enroll you in a debt management plan regardless of your chances of success.
  • Debt Settlement: FTC and state investigators have estimated that less than 10% of customers complete these programs [2]. In 90% of cases the settlement fails, and you might be left with a bigger debt burden (resulting from fees and penalties), wage garnishment or lawsuits resulting from falling behind on your payments, and a ruined credit report.

How to check the reliability and reputation of a debt consolidation company

1. Check your state Attorney General and Consumer Protection Agency for complaints

Check if any consumer complaints have been filed against the firm you are considering. Some states provide an online searchable database with an history of complaints. If not, try calling or contacting them directly:

If the company you are considering represents itself as being a non-profit, you can check whether this claim is true by checking their registration as a charitable organization with your state: contact info for State Charity Offices. In any case, being a non-profit isn't by itself a guarantee of reliability and fairness.

2. Make sure the company is licensed and bonded in your state (if required)

Check with your state Attorney General if it requires debt settlement and credit counseling companies to be licensed, bonded, and regulated. If this is the case, check whether the company you are considering is licensed and bonded. Depending on your state, the agency you need to check can be one of the following: the Department of Banking, the Department of Corporations, Department of Commerce, Consumer Credit Division, Division of Banking, or other. Don't hire a firm that doesn't follow the requirements of your state.

When a company is bonded in your state, it means that if there is misconduct on their part, you can sue the bonding company and obtain legal jurisdiction over them. Many Debt Settlement Companies are located in California, Texas, and especially Florida where it is difficult to sue. They could also have included a clause in the contract they ask you to sign in which you waive your rights to bring a law suit against them.

3. Check the Better Business Bureau

The Better Business Bureau (BBB) is neither a government agency (or affiliated with the government in any way) nor a consumer watchdog. It's a non-profit organization funded by annual dues paid by businesses in exchange of "accreditation." If a business grade drops too low, they loose accreditation. It has been argued that this can result in an incentive to maintain high grades for fee paying companies. A company with no complaints and not "accredited" by the BBB (both accredited and non accredited businesses can be listed in the BBB) can have the same A+ grade as a competitor with many complaints that pays the annual dues to BBB and "answers" these complaints. There have even been isolated cases of fake non-existent businesses given high grades just because they had paid their annual fees, while companies who didn't pay the fees were getting sub par grades, even if there were no complaints. Apart from these cases that should represent an exception, there seems to be a conflict of interest at play when it comes to BBB ratings.

What to look for in a BBB company profile:

  • The most valuable information you can gather from the BBB company profile is the number of BBB complaints and the details for each complaint (in some cases you can read the actual correspondence back and forth between the client and the company. Click on the upper menu tab "Complaints" and then on the link "Read Complaints Details" next to each complaint in the log). You should gauge the number of total complaints against the estimated volume of customers served by the company. Two complaints for a small company are worse than two complaints for a large company servicing many more clients. The Better Business Bureau has been inundated with complaints about debt settlement companies [3].
  • BBB rating: it appears to be mostly based on how business resolve customer complaints (not on the quality of the service), and a closed complaints doesn't necessarily mean the customer was satisfied with the company response, since the case will be closed regardless [4]. In addition, there is a conflict of interest as we mentioned above, so the rating is generally inflated and not necessarily meaningful.
  • BBB accreditation: doesn't really provide any indication of the reliability of the company, as it only means that the company is paying an annual fee to BBB.

4. Find out when the business was established

The longer the company is in business the better (or at least the easier it will be to check its reputation). Some businesses earn such a bad name after a while that they eventually just change their name to clean up their records and start again. You can find the formation date on the Better Business Bureau (if the company is listed there) or you can pull up any business record and verify the date a company was established by visiting your state Secretary of State "business entity search" web page and searching for the exact company name.

5. Perform an online reputation check

The Internet can provide useful indications regarding the reputation of a company, but keep in mind that it can be prone to manipulation, with fake positive reviews to make a company appear good, and fake false complaints to damage a competitor.

  • Search on Google for the company followed by "complaints," "scam," "fraud," "deceptive" (try "reviews" with caution, as they can often be paid reviews). Not always these complaints will accurately reflect the quality of a service, as they might represent a small percentage of cases compared to the number of customer served by that company, and in some cases they might even be fake.
  • Google Discussions - search for the company name. This is an excellent tool for finding authentic exchanges of opinion on a company, based on the actual experiences of people who have used its services in the past.
  • ComplaintsBoard.com - search a company and find if any complaints are discussed in the forum.
  • RipoffReport.com - search for the name of the company. Beware, though, that with the introduction of the "Ripoff Report Verified" program, Ripoff Report might have introduced a conflict of interest similar to that of BBB, which could prevent them from providing an unbiased review.
  • ConsumerAffairs.com - beware that the ratings could be misleading. Similarly to BBB and Ripoff Report, ConsumerAffairs.com offer a "Consumer Affairs Accredited" status. A conflict of interest can arise from a revenue model based on "accreditation" or "verification" in exchange, among other things, of a fee.
  • Debt Relief and Credit Repair Scams (FTC) - scan this press release list by the Federal Trade Commission to get an idea of what type of scams and scammers are out there.

6. Check for membership in a trade association

When a company is a member of a trade association, they have to pass some type of review to make sure that the standard of their service and the training of their counselors is at par with the association guidelines.


7 Red Flags of Debt Consolidation Companies

Beware if a company you are considering is doing one or more of the following:

1. Encourages you to stop paying your bills without informing you about the consequences

If the company asks you to stop making payments to your creditors (without them making those payments on your behalf), you know you are dealing with a debt settlement company.

If they ask you to stop making payments, they must inform you about the possible negative consequences of this action: severe damage to your credit report and credit score for at least 6 full years (which is not negligible, can't be repaired, and doesn't last only as long as you are in the plan, no matter what they tell you), that your creditors can initiate collection efforts and ultimately file lawsuits against you in court, and that the debt might actually increase rather than be reduced if a settlement is not reached, since your lenders can charge late payment fees and penalty interest, increasing your debt burden rather than reducing it.

2. Charges upfront debt settlement fees

Avoid any company any debt settlement company that charges upfront fees. The debt settlement company should only charge you a portion of its full fee each time it settles with a creditor, never before. A common complaint against debt settlement companies is that some will use the initial payments you make to the settlement fund to pay for a high upfront fee (which can be in the $2,500 to $5,000 range, collected typically during the first year of payments). This fee will not be refunded once the debt settlement plan fails, which is the most likely outcome (no matter what they promise when they sell the plan to you).

Charging fees before a debt is settled has been prohibited in 2010 under the FTC’s Telemarketing Sales Rule (TSR) [5]. However, this rule only applies when the service is sold over the phone or over a web-based chat. If you sign up through a website or meet face to face, this rule doesn't apply anymore and you are not protected under Federal law. Some states can have stricter rules or impose a cap on the fees that a debt settlement company can charge.

If the fee is based on a percentage of the amount you save through the settlement process ("contingency fee"), then they should disclose the percentage and tell you the estimated dollar amount. Some companies will charge all types of fees: upfront fees of about 15% of the debt amount, a monthly service fee, and a contingency fee of 20% of the debt reduction amount (if there ever is one).

Carefully review the written contract or agreement before you sign in order to understand exactly what fees, in what amount, and when, will be charged. A reputable company will only charge you after a settlement has been completed.

3. Makes bold claims

If the company promises it will get you out of debt quickly and easily, boasts that it will reduce your monthly payments by half, guarantees that your debt can be paid off for pennies on the dollar or that it will pay you money if it doesn't get you debt free in 24 hours, claims that it can stop debt collection calls and lawsuits, or that it can remove negative information from your credit report, then the company is not serious and potentially a scam.

4. Talks about "legal right" or a new "Government sponsored" program

If the company suggests that you have a legal right to debt reduction, or that the plans they offer are government sponsored, authorized or approved, steer away from working with that company, as they are being deceptive at best. There are no legal rights to debt relief, nor government sponsored plans to reduce your debt. At most, a non-profit organization can correctly claim to be authorized by the U.S. Department of Justice to provide counseling services which are mandatory before you can be eligible to file for bankruptcy protection, as per 11 U.S.C. § 109(h). However, as specified on their list of approved agencies, The United States Trustee Program at the Department of Justice has not reviewed nor approved any debt consolidation service (such as debt management programs or debt settlement plans) that these companies might provide in addition to credit counseling.

5. Doesn't put everything in writing

Don’t rely on verbal promises. You can't trust a company that will not present you with a formal written agreement or contract which clearly and accurately describes: the service being provided, what guarantees are offered and what happens if these aren't met (the wonderful results that some guarantee when they make the sale talk are usually nowhere to be found in the written agreement), exact payment terms with straight-forward fee structure, how long a plan will last, what happens if there is a dispute, and the business full name, mailing address, and contact information. Ignore the marketing material a company sends you or publishes on its website. Instead, read the agreement very carefully and don't sign it until you fully understand and agree to every single term on the contract.

6. Forces you to make voluntary contributions

Some non-profit credit counseling agencies will urge you to make voluntary contributions (which is just another way of saying "fees"). If the agency won't help you unless you pay the voluntary contributions, look for another agency. Anything that is "voluntary" can't be forced on you.

7. Doesn't spend time to carefully review and assess your unique financial situation

If a company tries to enroll you into a debt relief program without having first spent an appropriate amount of time (more than 30 minutes) reviewing your personal financial situation, providing money management and budgeting counseling if needed, and discussing with you the different options and what could be best suited for your specific case and why, then you know they are just trying to sell you their program regardless of your best interest. They try to force you into a one-size-fits all plan because it will generate more revenue for them. Take your business to a company that will provide individualized counseling.



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  1. Evaluating the Effectiveness of Credit Counseling, Phase One: The Impact of Delivery Channels for Credit Counseling Services. Consumer Federation of America. June 12, 2006
  2. DEBT SETTLEMENT: Fraudulent, Abusive, and Deceptive Practices Pose Risk to Consumers. US Government Accountability Office (GAO). April 22, 2010.
  3. "Complaints to BBB Against Debt Settlement Companies On the Rise." Better Business Bureau. April 29, 2010.
  4. BBB Complaint Form: The Complaint Process. Better Business Bureau.
  5. "FTC Issues Final Rule to Protect Consumers in Credit Card Debt." Federal Trade Commission. June 29, 2010.