Debt Consolidation Blog

The major reason behind the current economic crisis is the extreme amount of debt Americans are carrying around.  People were taking out loans they could not pay back, or purchasing homes they couldn’t really afford.  Now millions of Americans are unable to pay off their debts.  Debt consolidation is a service by which you can pay off your loans by coupling or consolidating them together.

       Debt consolidation can take many forms but basically it is a lumping of all your debts into one, in an attempt to lower the rate you are paying.  Think about it this way:  Let’s say you owe 1200 dollars to 5 different people.  Each of those five people is expecting you to pay them back.  However, you don’t have the money to pay them all.  In fact, you don’t even have enough to pay them all 10% of the debt. 

       Debt consolidation is a service where an entity negotiates on all that debt on your behalf. They contact those people and negotiate with them to charge you less.  The people you owe would rather get $900 now instead of waiting around, especially when you might pay nothing at all. This really is a win-win situation all around.  When an entity negotiates a debt consolidation, you are using their reputation to lower your debt.  They tell the people you owe that they will make sure you pay this debt.  In some cases, they even go ahead and pay your debtors on your behalf.

       For you it is great because it ends the phone calls and letters concerning your debt.  Plus, you are no longer juggling which bill to pay, you only have one.  And, because you are using this entity’s reputation, you are charged a lesser amount of money.  The entity charges a small fee and the people you owe are paid something.

       Debt consolidation works a few different ways.  It can be in the form of a loan or a repayment plan.  Both work pretty much the same from your end.  However, the difference lies in how this entity transfers the money.

       When you use a debt consolidation loan, the entity pays your debts for you.  You then take a loan out straight from them.  Typically this happens when you are paying unsecure debt like credit cards, but it can work for many different types of loans.  When you get a consolidation loan it is secured.  Secured means there is some sort of collateral.  For example, your car payment or mortgage are secured loans.  If you default on this loan, your car or home will be taken away.

       For debt consolidation repayment plans, your debts are not paid by a third party.  The debt consolidation service simply negotiates a lower rate on your behalf and charges you the lump sum of all your debts per month.  You pay them and then they transfer the money to your debtors.  This typically occurs when you don’t have collateral for a secure loan.  This is how a debt consolidation service protects itself from you defaulting.  You still pay them a fee; they are still negotiating on your behalf. 

       If you find yourself unable to pay your bills, debt consolidation is a very smart move.  Whenever you have multiple types of the same sort of debt, i.e. student loans, mortgages, credit cards debt consolidation can save you a lot of money.  The most important thing is to find a reputable company that will actually work on your behalf.  Repairing your credit will take time and work, but it is well worth it!

Articles on this site have been acquired from a variety of sources.  No content on this site should be considered financial or legal advice.

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