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Written by Aaron Adomis
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Making The DecisionIs a debt consolidation solution an option for you? Debt consolidation is one of the best ways to pay down debt quickly while saving money at it. There are various debt consolidation options available, though not all of them are worth investing in. You may qualify, but you may not. Look at what debt consolidation is and how it works. Explore some of the options you may have. Then, consider what the rewards will be. Is it worth consolidating your debt into one payment?
What Is Consolidation? Debt consolidation is the process of taking out a new, large loan to pay off all unsecured debts you have. Debt consolidation loans are used to pay off credit cards, personal loans and other unsecured debts. They shouldn't be used to pay off asset based loans such as car loans or mortgages, though they can be in some cases. When you pay off the debts with this type of loan, you no longer owe your current lenders. Their debts are paid in full. Instead, you owe a new lender who holds the new loan. You must then repay your new loan monthly, as you would any other type of loan.
Another form of debt consolidation comes in a completely different package. Debt consolidation credit counseling is another option many people have. This is not a loan; it is a consolidation of all debts into one payment managed by a credit counseling company. The credit counseling company will collect a monthly payment from you that is then paid to your current lenders according to an agreement put in place by the counselors, you and your creditors. This is not a new loan, though, which means you still owe the current lenders. With credit counseling, you may qualify for lower interest rates, reduced balances and sometimes a drop in fees. Yet, consumer counseling does negatively impact your credit report (though better than bankruptcy.) |
