Should you use a debt consolidation app?
November 1, 2023 | View PDF
If you are considering debt consolidation, you are not alone. According to the Federal Reserve Bank of New York, household debt in the U.S. increased by more than $7,000 from 2020 to 2022. Many individuals have since started turning to debt consolidation apps and other credit relief options for help.
Better Business Bureau recently released an investigative report on debt consolidation and credit repair companies. At the time of the report’s publication, BBB had received more than 11,000 complaints and nearly 900 negative reviews about debt and credit assistance. The filings revealed a pattern of misleading and fraudulent claims made by companies operating in the debt consolidation industry.
As we approach the holiday season, a time when debt can quickly pile up, the thought of using a debt consolidation app may seem especially appealing. Before you make that call, it’s important to determine if debt consolidation services are a good fit for you. In most cases though, you can get the job done yourself with a little time, commitment and organization.
Most debt consolidation apps can help you track and manage what you owe, but their approaches vary. Before investing any time or money, learn more about how debt consolidation apps work to find out which options may help you.
Tips for picking the right debt consolidation app
Research the app’s debt payoff strategy. Some debt consolidation apps focus on taking a snowball approach, like paying off your smallest debts first. In contrast, others use the avalanche approach, paying off debt with the higher interest rate first. Other apps allow you to choose which one to use or create a personalized payoff plan. Before you pick an app, consider which debt strategy will most motivate you to stay on track.
Determine if the app supports your financial goals. Some apps automate payments, while others are more about motivating to get debt-free. Some help you to budget, while others help you calculate early payoff savings. Others help you pay down debt quicker by rounding up your purchases and putting the extra few cents toward your debts. Consider how you expect a debt consolidation app to help you and what tools you need to achieve your financial goals.
Consider connecting your financial accounts. Many debt consolidation apps allow you to connect your financial accounts. If this feature appeals to you, choose an app that offers it. However, remember that some apps limit how many accounts you can connect.
Find out if the app is trustworthy. Once you know how you want to get rid of your debt, comparing apps and their functions will be easier. Choose a few that work with your situation and compare. Research each service on http://www.BBB.org to see what other people are reporting about apps. Do they have complaints? If they do, how are they responding to and addressing those complaints? That’s one of the most important things to look for when doing your research.
Compare interest rates. Some apps offer lines of credit with interest rates that may be lower than what your credit cards offer. You will need a reasonable credit score to take advantage of this service, but depending on what you owe and how much interest you pay each month, it might help save you money.
Think about the cost. Some debt consolidation apps are free, but others require a monthly or yearly subscription fee. Be sure the app will save you more money than you’ll spend. Otherwise, you’ll be working against your financial goals.
Know when it’s time for credit counseling. Apps can be a convenient and effective way to consolidate and pay off debt. However, consider credit counseling if you don’t qualify for debt consolidation or are struggling to make even the minimum payments on what you owe. Remember that a trustworthy credit counseling agency should give you information about services and the agency itself without asking for any of your personal or financial details upfront.
Be careful with your personal information. Debt consolidation apps will ask you for sensitive financial information, especially if you decide to connect your financial accounts. Double and triple-check that you are dealing with a reputable app before handing over this information.
Visit the BBB Money HQ at http://www.bbb.org/all/money to gain more insight into achieving your financial goals.
Logan Hickle is a PR and Communications Manager at BBB Great West + Pacific.