Simply put, debt consolidation means taking all of your outstanding debt and rolling it into one lump sum for payment simplification. This can be accomplished with a debt consolidation loan, or by using a debt consolidation service (also known as a debt consolidation program credit counseling service).
This can simplify your monthly bill paying process. Instead of paying multiple bills, you’ll pay the service one payment per month. If you find it difficult to pay the minimum payments each month, or you repeatedly make late payments, you may want to request a free debt consolidation consultation. .
In general, Debt consolidation helps people get back on their feet, however, some forms of aren’t always as helpful as advertised. Unfortunately, a debt consolidation loan is the most common solution thought of when dealing with a financial problem. Sadly, approximately 75% of those who secure a loan find themselves in deeper financial trouble than when they began. A consolidation loan transfers debt from one place to another. It’s often a short term fix with long term consequences. It will not reduce the amount you owe. You will still pay back 100% of the loan plus interest.
A loan is often secured by real estate or other collateral. Once you have taken out a secured loan, you have just exchanged your unsecured debt for secured debt. These loans are typically spread out over a 15 - 30 year period, leaving you open to the loss of collateral over this period. If you run into further difficulty in the future you stand to lose the collateral that secured the debt consolidation loan - often your home.
A large problem that consumers run into is: once their credit card debts are paid off following a debt consolidation loan, they suddenly have new spending power - empty credit cards. Unfortunately, it is not long before the cards are once again maxed out. Now you will have both the loan and the credit cards to repay. Remember, being in debt will leave you with less disposable income or worse, not enough to pay for life's necessities. Although a loan may result in lower payments, it may still increase your total debt load. Ask yourself: is your goal to get out of debt or to prolong your situation for the next 10 to 30 years?
Another option is a debt consolidation service. They offer a program where your debts are consolidated into one monthly payment. While in the debt consolidation program, you’ll pay the service a fee as well as your total payments each month. The service then disburses the payments to your creditors. You should know that many of these services are funded by your creditors simply to collect payments from you. The more debt you put in their debt consolidation program, the more fair share your creditors will pay the service. Furthermore, a debt consolidation service will not always lower your interest rate, although that is the implied goal of a program. Understand that these services have pre-negotiated interest rates with your creditors. If the rate is lower than yours, your rate will be reduced. However, if the pre-negotiated rate is higher than yours, your rates may actually increase. Lastly, you are relying on a third party to make your payments for you. If the debt consolidation service is late or makes the incorrect payment, you will be penalized. While in a program, you will receive a mark on your credit stating you are paying through such a service. Many lenders view this as a negative, particularly mortgage lenders.
Depending on your situation, a better option than debt consolidation may be Debt Settlement, also known as debt negotiation. With our personalized debt settlement program, we negotiate on your behalf to eliminate your debt. Furthermore, in Debt Reduction, the amount of money you owe, the principal, is actually reduced versus debt consolidation where only the interest rate may be reduced. With a loan, you need to obtain a new loan in order to pay off your existing debt. If you have too much debt and/or bad credit, it is unlikely that you would qualify.
A competent debt reduction company can help reduce your debts to a manageable level so you don’t have to apply for a new loan or join a debt consolidation program. For a free consultation from Knockout Debt, click here.
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