How debt consolidation works

Ever wonder if there is a simple way to take care of multiple debts without having to deal with exorbitant monthly payments?

Debt consolidation is often an excellent way to pay down debts without having to resort to bankruptcy. Basically, this is a means of paying off several extant loans with a single larger loan, which can then be paid off monthly. So, while it will not erase your debt by any means, it does make the payment process simpler, and you may be able to find a consolidation loan with a lower interest rate than your current loans.

You should consider seeking out a debt management service if you often make late payments to your creditors, if you can afford only to pay the minimum balance on your credit card, or if more than 20 percent of your monthly income is going toward paying off debt. While banks do offer consolidation loans, they will not issue these to people with bad credit, which is why many people taking advantage of debt consolidation take their loans out from a finance company. These companies will lend to people with low credit scores, but at a higher interest rate. Most of these loan rates are also variable-interest, meaning that they may rise over time.

Contacting a debt management company will allow you to find out exactly how much you owe, and to whom, although if you have gone some time without paying some creditors, or if you have been taken to collections, you may have to contact these creditors on your own to obtain the debt information you will need for the finance company to consolidate your debt. Keep in mind that there are many non-profit finance companies, as well, which will not only help you to obtain a debt consolidation loan, but can also offer services like financial counseling.

-Seth Berger