Learn the Facts About Debt Consolidation Programs

Debt consolidation programs are for people who are in trouble with their debt and help by lowering their monthly payments to an amount they can deal with. These kind of programs are a win-win for the consumer and the lender since they allow the borrower to avoid hurting their credit score and at the same time protecting the lenders from possibly losing their entire loan balance to a bankruptcy filing.

There are several types of debt consolidation programs available to most people. One is a debt consolidation company that works directly with the creditors to modify the existing loans in a way that lets the borrower to pay off their debts in a reasonable amount of time. And debt consolidation loans which let the borrower to pay off their high interest rate debts like credit cards by getting a lower-rate debt consolidation loan that covers all of the outstanding balances and pays them off.

So how do debt consolidation programs that are provided through a credit counseling agency or debt consolidation company work? In these kind of debt consolidation programs, the agency or company the consumer chooses will use a worksheet to get an idea on the persons income and expenses and where to get a starting point on how fix their debt problems.

Once they have figured out just how much money is available each month, to pay toward their outstanding loans and credit cards. The company will talk to each of the creditors and work out an arrangement that will allow the borrower to pay off the debts over an agreed upon period of time. This is usually accomplished by negotiating a lower interest rate, lower payments, and even a lower principal amount.

The creditors are agreeable to these kind of arrangements because in most cases, the only other option is that the debtor, who most likely already a few months behind in payments will turn to something more drastic for debt relief. If the debtor chooses to file bankruptcy, the lenders may be unable to recover anything at all on the outstanding balances. So most lenders with try to work with debtor when ever possible.

But what about debt consolidation loans? Are these kind of loans better debt consolidation programs when compared to using an agency to help manage debt with creditors?

That all depends on the terms and the length of the loan. In some cases, lenders who provide debt consolidation programs that involve a consolidation loan actually charge an interest rate that is higher than the interest rates of the existing loans or credit cards. They are able to lower a debtor’s payments even though the loan is at a higher rate by scheduling the pay back over an extended period of time, perhaps 10 or 15 years.

While the monthly payment is less than that of the combined payments of the other loans or cards, in the long run the borrower pays back a great deal more because the payments are stretched out over a longer period of time. While not all debt consolidation loans work in this way, before you get into a loan make certain that you understand the complete terms and total payback amount. You do not want to get yourself in more debt by trying to fix your short-term debt problems, so be careful before you sign anything.

Debt consolidation programs can help borrowers who are facing financial problems get their debt under control. Two of the most common types of debt relief programs available to consumers are credit counseling companies and debt consolidation loans. The one that you choose depends on which is the best option for your particular debt problem.

 

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