Many people ask the question, what is debt consolidation? The simple answer is that it is a way to combine all of your unsecured debt into one payment. This is done in the hope that one may simplify the repayment process, as well as save money on interest, and lower their overall monthly payment total.
While there are several ways to make this option happen, by far the most common is a debt consolidation loan. This is one loan that is issued in an amount that will cover all existing debt, and can then be paid back by making only one monthly payment, instead of several. These loans are generally considered a good deal, as they carry a lower interest rate than the average credit card or loan, and truly help simplify the repayment process.
In some cases, debt consolidation and debt settlement are used in conjunction. Debt settlement is the process in which a debt specialty company will contact the companies you owe money to, and negotiate a lower total of the money owed. This is particularly effective with credit card companies, as it is within their right to waive costly late fees, and cut interest rates. It is also possible that these specialist will be able to reduce medical bills, and personal loan interest as well. Those that choose to use this service may be able to take out a lower debt consolidation loan, simply because they will owe less.
Debt consolidation is not a free service. That said, it is usually well worth the what it costs, as the savings will add up to more than the cost of using this service. Unlike filing for bankruptcy, or debtor’s court, there is no upfront cost. The fee for this service will be included in the loan total. If you are considering using this service, you will need to ask upfront what the total cost will be. This should be weighed into the decision of whether or not this service is a good option for you.
Another way this differs from bankruptcy or debtor’s court is that it will not reflect as badly, or for as long a period of time, on your credit report. The sooner you start the process, the better, as the only damage to your credit will be the late payments that show up on your report prior to the loan paying all of your creditor’s in full. Once all of these debts are paid, individuals will not only be able to halt any further negative entries, but will actually see their credit score improve. The longer a bad debt situation goes on, the worse your credit will be. It is vital that you take action as soon as you see that you are in trouble.
Those that wish to take advantage of this service will need to contact a debt consolidation company. There are a few that are less than reputable, and it is wise to read online user reviews, and check with the Better Business Bureau before making a choice of which company to use. The debt consolidation industry as a whole has earned a less than stellar reputation due to the actions of a few. This is truly a shame, as it keeps some individuals that could really benefit from this service from getting the help they need.
Learning exactly what is debt consolidation is the first step. While it is not the answer to debt problems for everyone, this service helps thousands of people each year. It is a practical solution, to a complex problem, and because of this, is considered an extremely valuable service.