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If you’re struggling to get out of debt and dealing with multiple lenders and due dates, debt consolidation may be a good option. The U.S. doesn’t offer government debt consolidation programs, but it does provide resources for credit counseling, getting out of debt and filing complaints against predatory lenders and debt collectors. If you come across a company or debt consolidation program that says they are affiliated with the federal government, it could be a sign it’s a scam.
Read on to learn more about the kinds of debt resources the federal government offers, as well as alternatives you may want to consider.
What are government debt consolidation programs?
The federal government doesn’t offer debt consolidation programs directly. Alternatively, you can get debt consolidation loans through private lenders. You should always be aware of private companies that say they offer a government program to consolidate or bail out your debt — that doesn’t exist. However, private companies may be able to offer a debt consolidation loan.
A debt consolidation loan combines debt from credit cards, student loans, medical bills and other high-interest sources into a single loan with one monthly payment. In the process, you may be able to lower your interest rate, helping you save money on interest and pay down your debts faster.
Before considering a debt consolidation loan, the government recommends talking to a reputable credit counseling agency. A credit counselor will review your entire financial situation and help you develop a budget and a plan to pay down debt. You may be able to find low-cost credit counseling through a credit union, county extension office, religious organization or nonprofit agency. However, before working with a credit counselor, ensure they are accredited by one of these two organizations:
What debt services does the government offer?
The federal government offers several services and resources for consumers looking to get out of debt.
Credit counseling agencies
The U.S. Department of Justice maintains a list of approved credit counseling agencies through its U.S. Trustees Program. You can search by state to find agencies that are located in your state of residence or authorized to provide credit counseling in your area. The Justice Department has compiled this list because credit counseling is required before filing bankruptcy. The department is careful to note, however, that just because an agency is listed doesn’t mean the government guarantees its quality.
Debt collection oversight
By law, debt collectors are not allowed to use false, deceptive or misleading practices to collect a debt. This includes:
- Depositing post-dated checks early
- Falsely claiming to be an attorney
- Threatening to have you arrested
If you believe a debt collector is using unfair practices, the federal government provides several methods for reporting the debt collector. You can:
You may also file a complaint through your state attorney general. The National Association of Attorneys General maintains an updated list of attorneys general for each state, as well as contact information for each state’s office.
If you need help responding to a debt collector, the CFPB offers several sample letters to send to debt collectors. They include letters to request more information on the debt, inform the debt collector that you do not owe the debt, and ask the debt collector to stop contacting you or to contact you only through your lawyer.
Free credit reports
To get a handle on exactly who and how much you owe, you need to review your credit report. Federal law requires each of the three credit reporting companies — Equifax, Experian and TransUnion — to provide a free credit report every 12 months.
The federal government created AnnualCreditReport.com to allow consumers to request their free annual credit report from each of the credit reporting companies.
The CFPB offers a 21-day email course to help teach consumers strategies for paying down debt. You can sign up for its Get a Handle on Debt Boot Camp to learn more about creating a budget, tracking your spending and other ways to meet your financial goals. Having a good financial plan in place is the foundation for not only getting out of debt, but staying out of debt in the future.
Alternative debt consolidation options
If you’re considering debt consolidation, here are some loan options to consider:
- Personal loans. Many banks, credit unions and online lenders offer personal loans for debt consolidation. Shop around for a loan with a lower rate than you’re currently paying so more of your payment will go toward the loan’s principal and you can pay off the balance faster. The higher your credit score, the more likely you’ll be to find a lender willing to offer a low interest rate and favorable terms.
- Credit card balance transfer. Many credit cards offer new cardholders 0% interest on balance transfers for an introductory period of anywhere from six to 21 months. If you can pay off your debt within the initial period, this can help you pay down debt faster. However, keep in mind that most balance transfers involve a balance transfer fee that averages 3% of the amount transferred. Run the numbers to see whether you’ll save money after taking the balance transfer fee into account.
- Home equity loan. Tapping home equity can help you consolidate debts with a low interest rate. Since the loan is secured by your home, lenders are usually willing to offer lower interest rates than they would on an unsecured loan. However, consolidating debt with a home equity loan can be risky. If you run into financial difficulties and cannot make payments on your home equity loan, the lender can foreclose on the property.
- Home equity line of credit. A HELOC is similar to a home equity loan in that it is secured by your home’s equity. However, unlike a home equity loan, instead of getting a lump sum, you get a line of credit that you can draw on for several years – similar to a credit card. HELOCs typically offer lower interest rates than credit cards or personal loans. However, most have variable interest rates. If interest rates increase, your monthly payments will go up as well.
While the government doesn’t offer debt consolidation programs directly, you have many options for dealing with debt from the federal government and private companies. Keep in mind that many unscrupulous organizations target consumers who are desperate for help and charge hefty fees without providing any services. Watch out for any debt relief company that promises quick results. No matter which program you choose, getting out of debt is never an overnight process. It can take years to pay off debt, so do your research on an organization before providing any personal information. Then, follow the program and be patient on your journey to becoming debt free.