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Debt Consolidation 101
By Mansi gupta, Thu Dec 8th
Debt consolidation occurs where one takes out a loan in order topay off two or more existing debts. Consolidating existingunstructured debt into one personal loan may save on yourmonthly outgoings while, at the same time, offering a repaymentdiscipline and clear end-date to your debt. An individual can join any debt consolidation program run byeither a private or a non - profit organization. After meetingwith a certified debt counselor one is in a position to decidewhich option is the best. The options available are debtconsolidation whereby all the debts are lumped together and paidoff with one single monthly payment negotiated by the debtrelief agency. There is debt consolidation loans, debtmanagement 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 allof the major creditors (mostly credit card companies, and somemedical & collection companies) where the interest rate isroughly predetermined. On calling
a debt consolidation company,they refer to creditor rate sheet and then give a new paymentbased on the lower interest rates they have with that respectivecreditor. Typically this payment is lower than what the creditcard companies offer the public and more often than not willsave you money monthly and simplify consumer payments if one hasmultiple creditors.
One caveat of the Debt Consolidation plan is that one mustcancel any and all cards one includes in the program. Anindividual may wish to exclude a card for emergencies, dependingupon the company's policies. One benefit of the DebtConsolidation Program is if one is behind on payments andgetting harassed by the creditors. On making the new monthlypayment, this will stop the creditors from calling and keep themsatisfied for the interim. On extending the period over which one repays debt may mean thatit will cost him more overall so make sure to read the terms andconditions carefully. One must also think carefully beforetaking out a secured loan, securing other debts against yourhome. Remember, your home may be repossessed if you do not keepup repayments on a mortgage or other loan secured on it. The payments are usually setup to last 4-8 years and statisticshave shown that there is a significant fallout on debtconsolidation programs due to unrest, situations changing, andpoor customer service. Commissions to expect when shopping a debt consolidation companyare roughly your first payment you'd make toward the programplus a monthly administration fee. The monthly admin fee ranges all over the board, depending uponthe company you are getting a quote from. Some charge a flat feewhile others charge a per creditor fee. A Debt Consolidation Program significantly benefits those whohave very high interest rates (above 18%), have more credit cardbills then they can keep up with, or would just like thesimplicity of one payment to one company for all of theirunsecured debt. About the author:Mansi gupta writes about debtconsolidation .
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