With debt consolidation, all your unsecured debts are consolidated into one account. The idea here is to eliminate higher interest rates and have lower monthly payments, making your debt more manageable. The main benefit of this plan is that you will have only one lower monthly payment so you can budget more efficiently and concentrate on eliminating your debt with less stress. However, this requires that you take on new debt to pay off your old debts, which means that you still owe the same balance you did to begin with. You also need to have a high credit score to qualify for a loan that will have a lower interest rate than the ones you are already paying, so often this is not the best solution.
Consumer Credit Counseling
Another option available to you is consumer credit counseling. This is typically done through a credit counseling agency, where they discuss a plan in which the agency will contact your creditors and negotiate on your behalf. The benefits of this course of action include the following:
- A single payment to all of your creditors, which the agency disburses for you.
- Your total monthly payment amount may be reduced and interest rates may be lowered.
- You receive a personal plan designed to pay off debt in 3-5 years.
- Most agencies provide budgeting advice and support for every client.
The debt settlement is frequently the best option for debtors because debt settlement companies can negotiate your debt down for you so that you owe less money. Essentially, you work with a debt settlement company to negotiate with your creditors on your behalf. Our goal here is to settle your debt with lump sum payments for a portion of your debts which are typically much less than your total balances. In return, the creditor may agree to waive penalty fees, lower interest, or forgive the rest of your debt entirely.