Debt consolidation is the process of consolidating the debts of a borrower. This debt solution option is better than bankruptcy. However, not all types of debts are covered by debt consolidation. As a general rule, only unsecured debts can be paid off by the debt consolidation company and secured loans, such as home and car loans, are excluded. Unsecured loans include student loans, taxes, medical bills, credit card bills and bank loans.
Before you sign any agreement with a debt consolidation company, you need to make a thorough research about its terms and about the company itself first. There are a lot of factors that you have to consider before pushing through with the negotiation process. You have to fully understand everything that is written on the agreement and make sure that you read between the lines.
Debt Consolidation: How It Works
The debt consolidation company will pay for all your unsecured loans through a single loan that you will be granted. After which, you have to pay them in monthly equal instalments with the corresponding interest.
There are debt consolidation companies that try their best to lessen the amount of your debt and interest, and they do this by negotiating with your creditors. The negotiators of these companies would usually propose reduction of the principal amount or the relinquishment of interests and other fees. Many creditors are already open to such negotiation rather getting no payment at all.
Debt consolidation is not only about being given a single loan to pay for all your debts, but it is also getting help from the experts as well as reducing your existing debt.
More and more people are finding themselves trapped in an overflowing debt, and it is not easy to get out from it. Sad to say, there are a few that have considered bankruptcy just to be able to free themselves from debt, which most of us know that it has a very heavy consequence and that is having a bad credit standing for a long period of time. So, as much as possible, make debt consolidation your first option instead of bankruptcy.
Debt Counselling: First Step before Debt Consolidation
Before availing of debt consolidation, it is recommended that you first approach a credit counselor that does not collect any fees. The credit counselor will give you possible solutions to your debt problem based on your current financial situation. He or she will also explain to you fully what debt consolidation is and the benefits that you can derive from it.
In case you find your self in financial trouble and would like to avoid bankruptcy then you should take a look at IVA as one of your options.