Dealing with Debt

Are Debt Consolidation Services Right For You?

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Many people have found themselves in tremendous debt with no idea how to get out of it. Some lost control of their spending on clothes, entertainment, or other frivolous things, and others had to use credit cards because they had no other funds for emergencies like a car breaking down or a leaking roof. No matter what the cause, debt consolidation services can help.

You might consider debt consolidation because you are currently overwhelmed by all of the bills and phone calls from creditors. In this case, consolidating your debts may be a great solution for you and your situation. But in order to make this method work, you will need to work hard to curb your spending. If you don’t control your spending, this debt reduction method won’t work.

What Exactly is Debt Consolidation?

It is a debt reduction method that combines bills from different creditors in order to create one lower payment to which you would pay the credit counseling agency you are working with. Usually, this one monthly payment will come with lower interest rates than you would get if you were paying each of your creditors separately.

Should I Undergo This Method of Debt Reduction?

There are quite a few upsides to consolidating your debts. For one thing, you simplify the entire process of paying off your creditors. Instead of making multiple monthly payments to multiple creditors, you will only need to make one payment to the consolidation firm. Under most circumstances, you will save some money when you go this route. That’s because the consolidation loan will cause you to have a lower interest rate.

Is There More Than One Way to Consolidate My Debts?

Now that you have decided that you want to consolidate your bills, figure out what type of consolidation plan you want to follow. One of the more popular consolidation plans is what’s called a debt management plan. With this type of plan, you will get additional amenities such as credit counseling and other types of educational opportunities that will teach you how to get out from under your bills.

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By working with a credit counseling professional, the two of you can come up with solutions that you can use to navigate your financial life in the future. Many consolidation firms just give you a list of debts to pay off and send you on your way. Good organizations will provide you with a debt management plan that includes debt counseling services and classes as well as a comprehensive solution to your financial problems.

By deciding to take on a plan to manage your debt, you should know about some of the downsides. The main con to working with one of these plans is that it’s far from a quick solution. Most people who decide to work on a debt plan from a consolidation firm will do so for a couple of years. So if you’re expecting to make a monthly payment or two before having all your debt magically disappear, it won’t happen that way.

When you make the commitment to work on a debt plan with a consolidation firm, expect to make monthly payments to the firm for at least 3 to 4 years. The exact amount of time you will need to pay the consolidation firm every month will depend on your amount of debt.

Why You Should Consider Debt Consolidation Today

There are a few other methods for getting rid of your debt for good. Some of these methods include taking out a personal loan and filing for bankruptcy. However, neither of these options is ideal. While you could use a personal loan to wipe out all your debt instantly, this option isn’t available to people who have no credit or a low credit score. Bankruptcy should only get implemented as a last resort. If you take this option, doing such tasks as buying a car or a house becomes that much more difficult as the bankruptcy stays on your record for a few years. For these reasons, consolidating your debt with a reputable firm is the best option for most people.

The core concept behind debt consolidation services, also known as a Debt Management Plan, is effectively lowering the interest rates and reducing the monthly payment amounts, and then consolidating them into one monthly payment so that people can get out of debt faster and save more money in the end. By far, the most common use of debt consolidation services is for paying off high credit card debts. Many people find themselves in dire financial straits after a period of years when they’ve misused credit cards and gotten into a situation where they have too little income to cover the required minimum monthly payments. Enlisting the help of debt consolidation services is an attractive alternative to wrecking one’s credit history or filing for bankruptcy.

The real power behind professional debt consolidation services is their ability to represent you when speaking with your creditors in an effort to reduce interest rates, waive late and/or over-limit fees, and create a lower minimum monthly payment. Viewed from the creditors’ perspectives, most would rather get a fraction of what you owe them if the only realistic alternative is getting nothing because you’re forced into filing for bankruptcy. Debt consolidation services use this fact to your advantage as they go to bat for you with your creditors and work to get each to accept a new set of terms laid out in a proposal which must be agreed to by both parties.

The other piece of the puzzle when you hire one of these debt consolidation agencies is that you actually pay the company one monthly payment, not your creditors. The debt consolidation company manages your payment and distributes it each month to each one of your creditors based on the proposal that you and the creditor agreed to. In this way, you save money by owing each creditor less (lower interest rates=less money owed) and save time and headaches by reducing the number of checks you have to write every month for debt payments or going online to pay on several different accounts each month. You send payment to the agency, and they take care of the rest. You can even have that payment directly withdrawn from your checking account each month. Debt consolidation services are responsible for doling out the money each month to the individual creditors. They make sure everyone gets paid on time.

Does Debt Consolidation Reduce the Total Sum of Debt Owed?

The amount of money that people have to pay is, on the surface, often the same. However, by working with a professional credit counseling agency, people in debt might have the opportunity to have their interest rates lowered or even wiped out altogether. This will lessen the total amount because you won’t be paying all that money to the interest. The money will instead go to the principal amount. So the total amount owed might LOOK the same, but if you ran the calculations to figure out how much you would be paying with interest, you’ll see that by lowering the interest rate you are actually saving a lot of money in the end.

How Does it Affect Interest Rates?

People often save money by using consolidation because of the lower interest rates. Right now, people with multiple lines of debt are paying a different high-interest rate for each loan or credit card. When they consolidate and go on a Debt Management Plan, they will have much lower interest rates that will apply more of their payment to the principal amount. Therefore, they will end up paying less money in the long term and also get out of debt more quickly.

Does it Affect Credit Scores?

Whether or not debt consolidation affects credit scores depends on the individual circumstances. For example, if you choose to go on a Debt Management Plan, you might see a small initial drop in your credit score, but that score will only increase when you start making payments on time each month. In other scenarios, individuals may begin to increase their credit score because they will have more credit available once the debt starts to dwindle. It depends on where your credit score was at, to begin with. If you had a lot of late payments and derogatory remarks, you may see a slight decrease. If your score was pretty good to begin with, then chances are you won’t see any effects.

Does Debt Consolidation Make Paying Easier?

Many people feel that debt consolidation helps to make paying off debt easier. Instead of dealing with multiple payments each month to multiple creditors, they need to make only one. They make one simple monthly payment to their credit counseling agency. They are less likely to forget about their one payment. When people forget about their monthly payments, they miss the deadlines. As people continue to miss payments, they are likely to see a decrease in their credit scores. You can also choose to have that one payment debited directly from your bank account every month. It’s pretty simple and easy. The credit counseling agency handles the rest. You get blessed with less stress.

Conclusion –

Each of your creditors benefits by getting paid on time each month, rather than relying on you and hoping you don’t declare bankruptcy or simply stop paying the debt. The agency benefits by earning money both on the initial set-up fee for creating your account, and also from a low monthly “maintenance fee” or “service fee” that’s usually around $5-$10 per creditor. You benefit by reducing the total amount you owe because of reduced interest rates, and you’ll have lower stress levels because you don’t have to deal with your creditors anymore. You’ll also pay off your debt faster than you ever could on your own. Debt that would probably have taken you decades to pay off may only take you somewhere between 3 and 5 years to pay off.

Consolidating debt is a decision that can help individuals have greater financial freedom. When you are ready to take this step, you should speak with an expert for more guidance. Our certified credit counselors are available to answer any questions you might have. The call is always completely free, confidential, and stress-free. We’re here to help you become debt-free!

Author: Lauralynn Mangis
Lauralynn is the Online Marketing Specialist for AdvantageCCS. She is married and has two young daughters. She enjoys writing, reading, hiking, cooking, video games, sewing, and gardening. Lauralynn has a degree in Multimedia Technologies from Pittsburgh Technical College.