How Debt Consolidation Really Works
You have probably seen the ads on television and heard them on the radio. There are many debt consolidation outlets offering their services to
people who feel as though they are drowning in debt. For some, these services can be a huge help in lowering your monthly payments and give you
some breathing room, but you need to do your homework.
The way debt consolidation works is the company you choose to work with will contact all of your creditors and work out a monthly payment plan with
them. In some cases, the creditor will lower the interest rate or agree to accept a lower payoff amount than what you actually owe. Once the
consolidator has negotiated repayment plans, you make one monthly payment to the consolidator, and your debts get paid off.
In some cases, you will find that with lower interest rates and negotiated payoff figures, you end up paying less per month in one payment than you
were previously paying out to all your different credit card companies and other creditors. Beware, however, that some consolidators charge large
fees, so while your monthly outlay may be significantly reduced, you may end up paying more in the long run.
Another way to consolidate your debt is through a home equity loan. Borrowing money against your home allows you to make one monthly payment
to your lender as opposed to many smaller payments to various credit card companies or other creditors. In most cases, the interest rate on a home
equity loan will be much less than the high percentage credit card companies charge, and you may qualify for tax deductions.
Personal loans are a little more difficult to obtain, especially if you are carrying a large amount of debt, but you can usually find the interest rates will be
lower than many credit card companies. Taking a personal loan to consolidate debt can help lower your monthly payment, allowing you to pay more
towards your debt or freeing up some money for you to use towards other things.
Another option to consider in an effort to conso