Debt Consolidation Programs: What Are They?
Debt consolidation programs are a way to combine all of your unsecured debt (debt that doesn't have collateral) into a single monthly payment, usually with a lower interest rate. You make your payment to a
debt consolidation company (see dtml-aff debtadv) or make a monthly payment on a debt consolidation loan. The debt consolidation program pays your creditors for you, reducing your balances more quickly so you can get out of debt faster. Many companies offering
debt consolidation programs, such as
Credit Card Consolidators, are willing to give you
free debt consolidation information and
free debt consolidation counseling to discuss how they can meet your individual needs and help you in debt consolidation.
What Types of Debts are Eligible for a Debt Consolidation Program?
Debt consolidation programs cover unsecured debt - debt that doesn’t have collateral or involves a title or lien, like an automobile loan or mortgage payment - such as:
- Credit card debt
- Past due utility bills
- Medical and legal bills
- Service charges
- Unsecured personal loans
- Charge cards such as gasoline and store cards
What are the Benefits of Using a Debt Consolidation Program?
If you have a lot of
credit card debt or other unsecured debt and are having trouble making your monthly payments, debt consolidation programs offer immediate relief by:
- Lowering your monthly payments
- Leaving you with more cash each month
- Making payments regularly and on time, saving your credit rating from further damage
- Reducing balances and interest and paying debts off faster
Once your debts are repaid or a
debt consolidation program has brought them under control, a credit repair company, including
Lexington Law Firm, can help you remove any inaccuracies in your credit report.
What Can A Debt Consolidation Program Do For Me?
- Determine Your Debt
The credit counseling company will assess the total amount of your unsecured debt and interest.
- Contact Your Creditors
The credit counselor will notify each creditor that you have joined a debt consolidation program and direct all future contact to them. If you get any collection calls after this, you can tell the collection agency you are in a debt consolidation program, and they must stop calling you.
- Negotiate Lower Monthly Payments Through Reduced Interest Rates and Fees
Most creditors will substantially reduce your interest rate when they are approached by a debt consolidation company. They would rather work with you through than take the chance that you will file bankruptcy later, in which case they will get nothing.
- Collect a Single Monthly Payment From You
After negotiating with your creditors, the debt consolidation program will charge you a single monthly payment to cover all of the debt you have placed in the program. This payment will usually be anywhere from 10% to 50% lower than the cost of paying these bills separately.
- Offer Incentives
Some debt consolidation companies offer good faith rewards programs for members who are always on time with their monthly payments, including cash back or a reduction in their monthly payment after six months or a year as an incentive to stay with the program. In addition, many credit counseling companies, including American Debt Resources, will work to educate you on budgeting techniques to avoid future credit problems.
Do Debt Consolidation Programs Charge a Fee?
In a word, yes -
debt consolidation programs charge a fee. In exchange for their services, a debt consolidation company will charge a fee, but that fee will be a small portion of the money their negotiations save you each month. A typical fee might be $40 per month for a $290 reduction in monthly payments and a savings of $7,275 in interest over 6 years.
What Else Should I Know About Debt Consolidation Programs?
While you are in a debt consolidation program, all of the accounts in the program are closed. Many debt consolidation programs allow you to keep one card out of the program as an "emergency" card so that you aren't completely without credit if you need it. Beyond that, you are prevented from using any of the credit cards in the debt consolidation program to run up new charges, and in most cases you won't be able to apply or get approved for new credit cards. This will effectively rein in your tendency to spend when you shouldn't, making sure your debts are cleared up without new debts being racked up.
For More Information about
debt consolidation programs, contact:
