What Is Consumer Debt Consolidation?
In simple terms, consumer debt consolidation is the act of taking several loans or debts and consolidating them into one loan with one monthly payment. This type of debt consolidation typically required consumers to take out a new loan that is used to pay all existing loans and the consumer is left with only one loan to pay.
For example, an individual may have a three credit cards with balances due, a student loan, a car payment, and a personal loan. These debts require the consumer to make six payments each month. Consolidating all of this debt will allow the consumer to stop making six monthly payments, and instead make one payment each month to pay off all six of their debts.
For consumers who are having difficulty making all of their monthly payments on time or have fallen behind on credit card or other payments, consumer debt consolidation is often an attractive option that allows them to repay their debts faster, and often times at a lower interest rate than what they were paying before.
The Benefits of Debt Consolidation
For many consumers, there are many benefits to consolidating debts into one manageable monthly payment. One of the biggest benefits of this type of debt consolidation is that it only requires the debtor to write one check every month for all debts that have been consolidated. This is usually a big relief for those who have been making multiple payments each month.
Many consumers have found themselves in the position of not being able to comfortably afford all of their financial responsibilities on a monthly basis. This may be a result of a job loss, poor spending choices, or a combination of the two. Consumer debt consolidation often has the advantage of lowering the total monthly payment required to an amount that is affordable to the debtor. For people who have been unable to meet all of their monthly obligations, this is a major benefit that reduces stress and leaves more money for other living expenses.
For those who have gotten behind on credit card and other payments, the stress of not being able to make timely payments is often overwhelming. This becomes even worse when creditors begin to call in an attempt to collect unpaid debts. When a consumer in this position decides to consolidate debt, the debt consolidation company works directly with the creditors, payments begin to get made on time again, and consumers feel less stressed because collection calls cease and bills are again being paid on time.
Another potential benefit of consumer debt consolidation is a lower overall interest rate. This is a major benefit for consumers who have become overwhelmed with credit card debt. Credit cards typically carry high interest rates and making minimum payments has little effect on the overall balance. Debt consolidation companies can often negotiate a lower interest rate, which allows the consumer to repay the debt faster.
Choosing the Right Debt Consolidation Company
Consumers who are interested in consolidating debt should be very careful when choosing a debt consolidation company. Unfortunately, there are many companies that exist only to take advantage of customers. These companies prey on consumers who may already be in financial trouble and, in the end, only serve to make the situation worse.
The good news is that there are also a lot of companies that are legitimate and the services that they provide millions of people help in debt reduction and debt elimination. The key is finding a legitimate company! One of the most important things a consumer can do when comparing debt consolidation companies is to check the Better Business Bureau rating for each company being considered. The Better Business Bureau collects information about companies and manages complaints from customers, so it’s a great place to start when trying to get a feel for how a company does business.
Consumers should also check to see that a company has been in business long enough to have established a solid reputation for good customer service and solid business practices. Quality debt consolidation services will also offer things like online account access and timely reporting of payments made.
Because we live in an electronic age, a quality debt consolidation service will often offer a wide range of online tools, such as 24-hour account access, electronic payment options, and online enrollment.
Consumers should also look for a debt consolidation company that employs certified debt counselors. The National Foundation for Credit Counseling and the American Association of Debt Management Services both accredit debt consolidation services and counselors. Both of these are great resources for finding qualified counselors and companies.
It’s also important to find out if a debt consolidation has a relationship with a large number of creditors. Most established companies will have relationships with almost all creditors, but this is an important consideration. In order for the consolidation company to successfully consolidate debt, standing relationships with major creditors is important. Companies who have these relationships will be better able to negotiate for their clients, resulting in lower monthly payments and a quicker repayment of debt.
