What is debt consolidation?
Debt consolidation is a process by which several unsecured debts with high interest rates are consolidated into a single and affordable monthly payment for the debtor.
When should you consolidate debt?
Debt consolidation can be of assistance to the debtor when his debt burdens spin out of control. You can consolidate your debts, if you’re facing the following situations:
- You're unable to tackle multiple bills simultaneously.
- You often miss your payments.
- You're making late payments frequently.
- You're getting creditor calls everyday.
- You're short of cash.
- You're using credit cards to pay your bills.
- You're planning to take out a cash advance loan.
What kind of debts can you consolidate?
Debt consolidation program or service usually deals with the unsecured debts only. Here are some debts, which you can eliminate through unsecured debt consolidation program or service:
- Credit card bills
- Unsecured loans
- Utility bills
- Hospital bills
- Payday loans
How debt consolidation program works?
Debt consolidation programs are services offered by professional corporations in order to help you consolidate several unsecured debt into a single monthly payment. The key purpose behind debt consolidation programs is reduction in the overall debt burden by cutback in the interest rates.
Check out the various stages involved in a debt consolidation program.
- Get free financial counseling: The debt consolidators will have a look at your financial health first. They will ask you different questions to get an idea about your financial health. They will compute how much revolving debt you're carrying on your shoulder. You'll be asked to look at all the bills and calculate the total debt amount.
After the debt consolidators/consultants get an idea about your total outstanding payments, they will ask you to attend a free counseling session. They will suggest useful tips which can help you take care of financial health in a better way. Ask all your questions regarding debt consolidation service to the consultant. He will solve all your doubts and queries on the debt consolidation services.
- Sign the written agreement: If you're convinced that you really need debt consolidation help, then ask the consolidator to send the written agreement at your home. Read each and every clause of the agreement prior to signing it. If you have any question regarding fee or service, then call the consolidator and clarify your doubts.
- Get fewer collection calls: After you have signed the written agreement, inform your creditors/collectors that you have enrolled into a consolidation program. Henceforth, all your creditor calls will be handled by the consolidation company. If you receive calls from the creditors, then request them to contact the consolidators in future. However, keep it in mind that the creditors are not compelled to comply with your request.
- Go through the payment plan: The consultant prepares a payment plan suitable to your financial health and forwards it to the creditors/collectors. The consultant uses his negotiation skills to convince the creditors to reduce the interest rates and eliminate the late fees on your unsecured debts.
- Start making the payments: The creditors review the payment plan proposed by the consultant. If they like the plan, then they will accept it without making any further delay. Once the payment plan gets accepted, start sending monthly payments to the consolidation company. The consultant will forward the money to each of your creditors as per their individual share.
The consolidation company takes the responsibility of sending the payments to the creditors. You don't need to do anything about it. So you need not worry about tackling multiple high interest bills anymore. All your unsecured debts are consolidated into an affordable monthly payment plan. You just need to make the payments every month on time.
- Re-evaluate your financial health: Your financial health will not remain same all the time. It may deteriorate anytime. If such a thing happens with you, then it is advisable to update the consultant about it. The consultant will re-negotiate with your creditors, and arrange another payment plan suitable to your financial health.
Over time, as your bills get paid off, you’ll be able to become debt-free. Debt consolidation is thus one of the most simple debt-relief options that can help you to improve your financial health.