Debt Consolidation 101
debt Consolidation 101
Written by: Mansi gupta
debt consolidation occurs where one takes out a loan in order to
pay off two or more existing debts. Consolidating existing
unstructured debt into one Personal Loan may save on your
monthly outgoings while, at the same time, offering a repayment
discipline and clear end-date to your debt.
An individual can join any debt consolidation program run by
either a private or a non - profit organization. After meeting
with a certified debt counselor one is in a position to decide
which option is the best. The options available are debt
consolidation whereby all the debts are lumped together and paid
off with one single monthly payment negotiated by the debt
relief agency. There is debt consolidation loans, debt
management plan and as a last resort bankruptcy.
A debt Consolidation service, or sometimes referred to as a
“debt Management Plan”, has preset arrangements with almost all
of the major creditors (mostly credit card companies, and some
medical & collection companies) where the interest rate is
roughly predetermined. On calling a debt consolidation company,
they refer to creditor rate sheet and then give a new payment
based on the lower interest rates they have with that respective
creditor. Typically this payment is lower than what the credit
card companies offer the public and more often than not will
save you money monthly and simplify consumer payments if one has
multiple creditors.
One caveat of the debt Consolidation plan is that one must
cancel any and all cards one includes in the program. An
individual may wish to exclude a card for emergencies, depending
upon the company’s policies. One benefit of the debt
Consolidation Program is if one is behind on payments and
getting harassed by the creditors. On making the new monthly
payment, this will stop the creditors from calling and keep them
satisfied for the interim.
On extending the period over which one repays debt may mean that
it will cost him more overall so make sure to read the terms and
conditions carefully. One must also think carefully before
taking out a secured loan, securing other debts against your
home. Remember, your home may be repossessed if you do not keep
up repayments on a mortgage or other loan secured on it.
The payments are usually setup to last 4-8 years and statistics
have shown that there is a significant fallout on debt
consolidation programs due to unrest, situations changing, and
poor customer service.
Commissions to expect when shopping a debt consolidation company
are roughly your first payment you’d make toward the program
plus a monthly administration fee.
The monthly admin fee ranges all over the board, depending upon
the company you are getting a quote from. Some charge a flat fee
while others charge a per creditor fee.
A debt Consolidation Program significantly benefits those who
have very high interest rates (above 18%), have more credit card
bills then they can keep up with, or would just like the
simplicity of one payment to one company for all of their
unsecured debt.
About the author:
Mansi gupta writes about
consolidation .
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A Guide to Debt Consolidation