Debt Consolidation?
Dec 21, 2009 in
Personal Finance
shareenhmon
Can someone tell me how do Debt Consolidation work? Is it free? How should I choose what company to go with once I decide to consolidate my debt? Is this a wise choice? What are the consequences of Debt Consolidation?
Can someone tell me how do Debt Consolidation work? Is it free? How should I choose what company to go with once I decide to consolidate my debt? Is this a wise choice? What are the consequences of Debt Consolidation?
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3 comments
Lady Mala on December 21, 2009 at 8:56 pm
The good ones are non-profit and free, or a minor fee. Some scammers charge you $400-$500 for their service. All they do (the legal ones) is bargain with your creditors for lower interest rate or erase some of the debt. It will, of course, show up on your credit record. But you’ll have 1 monthly bill to pay instead of 10, and if you’re lucky, pay off the debt sooner. Then you can start building your credit again- but don’t get in to debt again! Live within your means!
serinaster on December 25, 2009 at 12:55 am
Debt consolidation is combining your high interest debts into one with a lower interest rate. I don’t buy into all these companies saying they can help you consolidate debt for a fee when with proper research you can do it yourself.
Depending on how much debt you have and the interest rate, if your credit is good, you can apply for credit cards with a 0% promotional period and transfer most of your debt into one card. Try to pay off as much as you can before the promotional period expires and DO NOT use that card. If the period expires, see if you can roll that debt into another credit card. Be careful not to turn this into a vicious cycle…your objective is to pay off as much debt as possible.
The other option is to “snowball” debt. You can choose to tackle debt with high interest first, or cards that are almost maxed out, or cards with the lowest balance so you can feel a sense of accomplishment by paying them off.
Look at the bigger picture when consolidating, you might have lower monthly payments but end up being in debt for a longer period of time and paying more interest.
Andrea S on December 27, 2009 at 12:49 am
Debt consolidation works by allowing the consumer to pay a fixed amount to the consolidation company; and in turn, the consolidation company gives them the authorization to make payments to the individual creditors on your behalf.
The major benefit of debt consolidation is that you condense all of your bills into a single monthly payment at a low interest rate. There are various debt consolidation programs, which gives you a lot of options.