Debt Consolidation is a debt relief option that can have great benefits for you, if it is done properly. There are many debt consolidation companies out there, with many different kinds of offers and promises. Basically, debt consolidation service claims (for a certain fee) to assist in cleaning up your debt mess so that you can get back on track financially. In most cases, these claims come in one of three forms: debt negotiation, debt consolidation, and credit counseling. Each has its own advantages and disadvantages and should be looked at closely before signing up.
Debt negotiation is an option that can allow you to keep your monthly obligations to a minimum. If you currently have a variety of monthly bills, it may be easier for you to make all your minimum payments each month. You will also save money by only having to pay one bill each month instead of several bills. Unfortunately, debt consolidation loans often have high interest rates, so it is not a good option for people who are struggling with debt. If you have credit cards and/or store cards that are causing you financial stress, this option may be worth considering for credit card debt reduction.
Debt consolidation loans are usually given by a debt settlement company, which arranges with your original creditor to have some of your debt forgiven. The creditor agrees because they are more likely to receive some money than they would without the help of a debt settlement company. Most of the time, the remaining amount of debt is paid off through monthly installments arranged by the debt settlement company.
Credit counseling is another debt consolidation option. This is sometimes offered along with debt settlement. It is similar to debt settlement in that you make one payment to the debt consolidation loan company and they pay all your bills. Your credit counselor will negotiate with the credit card companies to lower your payments and interest rates on your accounts. They will also try to establish a lump sum with the creditor to pay off the debt.
Both debt settlement and credit counseling are free options that will help you get out of debt problem. You do not need to hire an attorney or live with the consequences of legal actions. Both of these options can be done without filing bankruptcy. Bankruptcy should only be used as a last resort when all other methods of debt relief have been exhausted. Remember that filing bankruptcy is expensive and will have a negative impact on your credit score for up to 10 years.
Both debt consolidation and debt settlement are effective options to help you solve your debt problem. Discuss your situation with a debt specialist and determine if either is right for you. Make sure to compare all costs before making a final decision.