Obviously, you won’t get into debt consolidation if it doesn’t help you save money. But how does it work? Does it really help you get your life back on track? If yes, then how? Let’s find out.
How does debt consolidation work?
But before we dig deeper into how your debts can be consolidated, let us know about the basic program first.
Debt consolidation program: Here you consolidate credit cards, personal loans, payday loans, medical bills, unsecured lines of credit and collection accounts into an easy and affordable payment plan by enrolling into a program offered by debt consolidation companies.
How does it help you save money?
A debt consolidation program helps you save money by:
Lowering your interest rates
Lowering your monthly payments
Waiving off late fees
Waiving off penalties and extra charges
How does it differ from debt settlement?
The difference lies in the mode of operation and their effect on credit score.
In debt consolidation, your payments are disbursed amongst creditors as soon as you start making payments. It will help to raise your credit score with time.
In debt settlement, your debts are negotiated as soon as you save around 50% of your outstanding balance in a dedicated account. Initially, it won’t help to increase your credit score.
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