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What Is Debt Consolidation and When Is It My Best Option?

Posted By:  |  June 26, 2016  |  0 Comment(s)
What Is Debt Consolidation?

One of the best ways to regain control of your finances is to try debt consolidation. Debt consolidation is for those who are making unsecured payments to multiple creditors each month (for example: credit card bills, personal loans, and medical bills). Even when you’re making the minimum monthly payments on those accounts each month, the interest rates on these debts may be still higher than what you’re paying.

What is Debt Consolidation?

The debt consolidation process combines all your unsecured debts into one convenient payment – often at a lower average interest rate than what you are currently paying. When you work with a debt consolidation company, instead of sending out payments to each of your creditors every month, you send out one payment to your consolidation company that they then disperse among your creditors.

It is a smart way to go because you only need to worry about making one payment each month, and the interest is lower, meaning the debt amount doesn’t accumulate as fast. That way, more of your payment can go toward the debt principal, rather than the interest amount. While there are do-it-yourself debt consolidation programs, many good companies offer consolidation services. Most consolidation companies even negotiate a lower interest rate on the debt, thus helping lower the total debt amount.

How Long Does It Take to Get out of Debt?

On average, customers can be debt free in 36 – 60 months when they work with a debt consolidation company. Typically, customers fall in that middle of that range, at 48 months, or 4 years.

The time it takes to consolidate varies with each program. Many companies offer a consolidation calculator online that one can explore to get an estimated time, monthly payment, etc.

How Are Credit Scores Affected?

Generally, paying down debt positively impacts credit scores. When people consolidate their debt, they have the opportunity to pay it off quicker, and get ahead of the game. Paying on time, and avoiding missed payments will increase your credit score, and keep you out of bankruptcy.

Consolidation Program Recommendations

Best Debt Consolidation Company - Consolidated Credit Consolidated Credit

Consolidated Credit is a transparent and large company that works with certified counselors. Their consolidation services are available in all 50 states, and anyone can cancel any time within 3 business days, for no fees or penalties. The startup fee is higher than average at $69, but Consolidated Credit is a reputable company. This positively rated company has been in business since 1993, and has served over 5 million customers. For unsecured debt, this A+, BBB-rated company is worth looking into.

Debt Consolidation Company - DebtWave

Debt Wave

With a free consultation, and certified debt counselors, Debt Wave is a solid option to explore for unsecured loan debt. The company offers a streamlined debt consolidation process, and monthly fees are affordable — at $49 per month. Customers can enjoy a 7.63% interest rate on consolidation loans, program transparency, and a well-established company track record. It is important to note that Debt Wave is not licensed in CO, KS, MD, or NY. Additionally, startup fees can get up to $75. But across the board, Debt Waved is highly favored among customers. The company is A+ rated, and accredited with the BBB. 

When Is It Best To Consolidate?

Debt consolidation is best for those who are feeling overwhelmed by debt. It can be a helpful way to organize multiple credit loan debt into one convenient monthly payment. This system is ideal for people who have a lot of unsecured debt, and want to pay it down without entering bankruptcy. Additionally, a consolidation program is a good route to go when one is struggling to stay ahead, and are faced with high interest rates. Or, when it seems like there are perpetual automatic withdrawals from one’s bank account. Consolidating allows people to pay off their debt faster, without avoiding credit damage.


Sources:

http://blog.readyforzero.com/does-debt-consolidation-hurt-your-credit/#.V13_kFd9JlJ
http://www.consolidatedcredit.org/debt-solutions/debt-consolidation/
http://www.consolidatedcredit.org/debt-solutions/debt-management-program/

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Poll

  • How important is it to you for a debt consolidation company to offer financial education resources?
  • Takes your existing debt and try to settle with your creditors for a lower amount. If you pay off the settled amount, your debt will be considered paid in full.
  • Negotiates with your creditors on your behalf.
  • Fee based on a percentage of your total starting debt or a percentage of the debt they save you.
  • Most settlement companies have you create a separate "escrow" account where you will make monthly contributions over a certain amount of time to contribute to your settlement. Once there is a substantial amount of funds to show your creditors, the settlement company will try to negotiate a lower amount of debt.
  • Combines all your debts and creditors into one monthly payment.
  • Allows you to pay one monthly payment to the consolidation company, instead of multiple payments to different creditors.
  • You no longer owe your original creditors; instead you pay one monthly payment to your consolidation company.
  • Consolidation companies can help negotiate lower interest rates on your debts and help lower your total debt payment in the long run. A lower interest rate will lower the amount you owe in the end.
  • Allows you to consolidate all your different debts into one personal loan that can be paid off over time.
  • Can offer borrowers a lower interest rate with a longer payback term (compared to high-interest credit cards or medical bills). This will lower the amount of money required to pay off the loan over time.
  • Personal loan debt consolidation can be an effective way to raise your credit score quickly (within 3-6 months).
  • Borrowers can receive funds from their loan within only a few days.

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