Debt Consolidation Services

What is Debt Consolidation?

Debt consolidation refers to a financial maneuver where a borrower, stricken with debt, consolidates his or her payment obligations into a larger loan. This action eliminates separate payments; when debt consolidation is undertaken the borrower is required to make a monthly or periodic payment to pay-down the agglomerated debts. Simply put, debt consolidation is the act of centralizing debts into one location with the hope of lowering monthly or periodic payments and attached interest rates.

When a borrower engages in debt consolidation, the individual will have only one payment; this solidarity enables the individual to effectively manage his or her payment obligations—multiple loans or lines of credit will perpetuate the risk of late of defaulted payments, which in turn, yields higher interest rates and penalties.

Debt consolidation is normally commenced to secure lower or fixed interest rates; these rates expedite the fulfillment of repayment. Because of debt consolidation, the borrower’s debts are lumped together to formulate one all-encompassing repayment plan.

In general, an individual will undergo consolidation for the following reasons:

• Achieve a lower monthly payment

• Eliminate the likelihood of incurring fees or late penalties

• Secure Lower Interest Rates

• Cancel previous penalties or fees related to prior late or missed payments

What are Debt Consolidation Services?

Debt consolidation services are financial institutions (credit counseling agencies) or government-sponsored programs that are dedicated to helping borrowers take charge of their finances and repayment obligations. Debt consolidation services help individuals and families develop sound and long lasting relationships with their underlying creditors.

When undergoing a debt consolidation, an individual can hire several credit counseling agencies to provide debt consolidation services. Before hiring an institution that provides debt consolidation services, an individual must evaluate their financial situation to illuminate the need for consolidation.

One of the best options a borrower has to manage their debts is to get a secured equity loan form a debt consolidation service. This type of loan, which is often attached with a low interest rate, puts the borrower’s assets (their home or car) as collateral. If the borrower fails to meet the repayment obligation, the debt consolidation service will seize the equity attached to the asset.

Before enrolling in a debt consolidation program, a borrower must evaluate the following questions:

• Are my interest rates rising at a rapid rate?

• Are debt collectors calling me?

• Are my minimum payments impossible to satisfy?

• Are my debts becoming so exorbitant that they’re all I think about?

How do I go about Researching and Selecting Debt Consolidation Services?

The process of evaluating debt consolidation services begins with research. An individual in debt should evaluate all credit counseling agencies and companies that provide debt consolidation services to ensure the delivery of honest and efficient work. All debt consolidation services should be a member of the Better Business Bureau; membership will offer referrals which can be reviewed by an individual seeking consolidation.

Effective debt consolidation services should be non-profit organizations comprised of trained and certified credit counselors. Once the borrower has found a reputable debt consolidation service, they must contact the entity to discuss their personal finances with a credit counselor. The borrower is required to answer questions that deal with their personal finances and unsecured debts (credit card payments, medical bills etc.). Once the borrower provides the counselor with the necessary information, the counselor will contact the associated creditors to negotiate a monthly price. The debt consolidation services, will charge a fee for this agglomeration; however, once the debts are consolidated the borrower will have only one payment to satisfy all their debt obligations.

In addition to the aforementioned desirables, debt consolidation services should offer educational resources on budgeting, paying bills, money management and other financial issues associated with debts. These resources should be complimentary; debt consolidation services will provide their customers with booklets, pamphlets and other educational resources to promote prudent financial practices.