David Kamau asked:
Being heavily in debt can be extremely stressful. It hurts even deeper when you have multiple creditors to deal with at the same time. Some people opt to consolidate debt through a debt consolidation service. But how does debt consolidation work?
You’ve seen the commercials on TV and heard them on radio. That debt consolidation is so heavily advertised in the mass media means one thing, it is good money-making business. And this is the reason you should be careful. But let’s first look at how it works, shall we?
Debt consolidation simply means combining most or all your debts so you now have one payment to worry about instead of several different ones with different due dates. This can be good, especially for your own peace of mind.
When you sign up with a debt consolidation company, you are assigned a credit counselor. The counselor will go through your finances with you and offer different options for getting out of debt, or at least easing your debt burden. These options typically include consolidation.
Assuming you’ve opted for consolidation, all your debts get combined into one and a monthly payment is calculated that is supposed to clear your debts in about three years.
A good credit counselor will also negotiate with your creditors and can often get your interest rates reduced and late fees waived. But this does not happen right away. You have to demonstrate your ability and willingness to keep your end of the bargain. This means making timely payments for at least three consecutive months.
You will mail your new single monthly payment to the debt consolidation company, who will in turn disburse the funds to each of your creditors.
You will also be required to close your revolving credit accounts such as credit cards, and not establish new accounts for the period of the plan.
There both positive effects and negative effects of debt consolidation. Positive effects include possible interest rates reduction, not having to worry about multiple accounts, and the possibility of becoming free of debt down the road.
Negative effects include possible negative impact on your credit score due to closing some accounts, restricted access to new credit, and ridiculously high fees that some companies charge. Look out also for scam credit consolidation companies.
Nicholas
Being heavily in debt can be extremely stressful. It hurts even deeper when you have multiple creditors to deal with at the same time. Some people opt to consolidate debt through a debt consolidation service. But how does debt consolidation work?
You’ve seen the commercials on TV and heard them on radio. That debt consolidation is so heavily advertised in the mass media means one thing, it is good money-making business. And this is the reason you should be careful. But let’s first look at how it works, shall we?
Debt consolidation simply means combining most or all your debts so you now have one payment to worry about instead of several different ones with different due dates. This can be good, especially for your own peace of mind.
When you sign up with a debt consolidation company, you are assigned a credit counselor. The counselor will go through your finances with you and offer different options for getting out of debt, or at least easing your debt burden. These options typically include consolidation.
Assuming you’ve opted for consolidation, all your debts get combined into one and a monthly payment is calculated that is supposed to clear your debts in about three years.
A good credit counselor will also negotiate with your creditors and can often get your interest rates reduced and late fees waived. But this does not happen right away. You have to demonstrate your ability and willingness to keep your end of the bargain. This means making timely payments for at least three consecutive months.
You will mail your new single monthly payment to the debt consolidation company, who will in turn disburse the funds to each of your creditors.
You will also be required to close your revolving credit accounts such as credit cards, and not establish new accounts for the period of the plan.
There both positive effects and negative effects of debt consolidation. Positive effects include possible interest rates reduction, not having to worry about multiple accounts, and the possibility of becoming free of debt down the road.
Negative effects include possible negative impact on your credit score due to closing some accounts, restricted access to new credit, and ridiculously high fees that some companies charge. Look out also for scam credit consolidation companies.
Nicholas