How does debt consolidation work?
Various credit companies offer debt consolidation programs and many companies are in the business. All debt consolidation programs have this in common – all your smaller debts are combined or consolidated into one. Your debt is far more manageble as you only need to make a single payment every month. To reduce the monthly payments, the debt is spread over a longer time period making it more affordable. The interest rate is often low making the debt affordable. Usually a trained representative or counselor from the company will discuss your situation and assess your financial needs, asking for details of your current outstanding debts, and monthly income. This will help you find out the monthly payments you can comfortably make. They may offer you a consolidation loan to pay off the debts where you will make repayments to them, or they may offer you a Payment Plan where they negotiate with your current lenders for lower interest rates. In a Payment Plan you will make monthly payments to
Being heavily in debt can be extremely stressful. It hurts even deeper when you have multiple creditors to deal with at the same time. Some people opt to consolidate debt through a debt consolidation service. But how does debt consolidation work?
You’ve seen the commercials on TV and heard them on radio. That free debt consolidation is so heavily advertised in the mass media means one thing, it is good money-making business. And this is the reason you should be careful. But let’s first look at how it works, shall we?
Best Debt consolidation simply means combining most or all your debts so you now have one payment to worry about instead of several different ones with different due dates. This can be good, especially for your own peace of mind.
When you sign up with a debt consolidation company , you are assigned a credit counselor. The counselor will go through your finances with you and offer different options for getting out of debt, or at least easing your debt burden. These options typically include consolidation.
Assuming you’ve opted for consolidation, all your debts get combined into one and a monthly payment is calculated that is supposed to clear your debts in about three years.
A good credit counselor will also negotiate with your creditors and can often get your interest rates reduced and late fees waived. But this does not happen right away. You have to demonstrate your ability and willingness to keep your end of the bargain. This means making timely payments for at least three consecutive months.
You will mail your new single monthly payment to the Unsecured debt consolidation company , who will in turn disburse the funds to each of your creditors.
You will also be required to close your revolving credit accounts such as credit cards, and not establish new accounts for the period of the plan.
There both positive effects and negative effects of credit card debt consolidation . Positive effects include possible interest rates reduction, not having to worry about multiple accounts, and the possibility of becoming free of debt down the road.
Negative effects include possible negative impact on your credit score due to closing some accounts, restricted access to new credit, and ridiculously high fees that some companies charge. Look out also for scam credit Card Debt Consolidation Companies .
Resource:http://ezinearticles.com/?How-Does-Debt-Consolidation-Work?-The-Truth-Plus-How-it-Affects-You&id=1982664
Generally people are struggling to get rid of debt but not been getting any success, as it requires a lot of determination. Well debt consolidation is one of the ways to reduce your burden, as it merges all the debt leaving it one big in front of you with the revised rates and easy monthly installments. The main concept of going for debt consolidation is all your debts becomes one and one don’t have to face different lenders and above all the rates are quite low. payday loans help
If you go with a debt consolidation program you will be set up to make one payment each month thru the company to your creditors, and the benefits you will recieve are lower interest rates, no late fees, overlimit fees, lower payments, etc Some will work with you and ask how much you can afford to pay and divide that amount and send that pymt to each creditor. The company will then send a “proposal” which is just a letter stating that you have decided to consolidate and will they accept you into the program. FYI Most companies will not decline the proposal because they will be getting their payments vs no payments Your credit card accounts are closed not inactive because they don’t want you charging up more debt while you’re recieving the benefits that you wouldn’t otherwise be recieving. It decreases your credit score temporarily but it will go back up gradually.
