Consolidation

Why Debt Consolidation Can Work
For people seeking to consolidate debt, there are many options to choose from. Determining the right solution for each unique debt level can be intimidating. Understanding the differences between the various debt consolidation methods can help consumers choose more effectively for their situation. Below you will find a brief description of some common debt consolidation options:

■A debt settlement program involves a settlement company negotiating with creditors to lower the outstanding balance of a person’s debt. Monthly payments made under a debt settlement program are placed in a settlement fund or an escrow account in anticipation of reaching a settlement with creditors. Typically this option is not available if the total debt owed is less than $10,000. This option also carries a certain amount of risk as there are some creditors who will not accept the settlement terms and can pursue legal action against the consumer (See more: debt settlement).
■Debt consolidation can be available in the form of a loan. The loan is used to pay off multiple debts by securing a lower interest rate or a fixed interest rate with the convenience of a single monthly payment. Debt consolidation loans can be secured against an asset like a house, but unsecured loans are also available. This solution does have its risks. If the consumer takes out a loan against their home and are unable to maintain their loan payments, they risk foreclosure on their property (see more: debt consolidation loans).
■Credit counseling agencies provide debt consolidation without a loan. This type of debt consolidation is referred to as a debt management plan (DMP). Consolidating debt on a DMP can give consumers enough room in their monthly budgets to make progress on paying down their debt. The process involves consolidating multiple unsecured debts into one monthly payment. When consumers work with an accredited agency for credit counseling and debt consolidation, the agency may be able to negotiate better repayment terms based on their relationships with the creditors. The consolidated monthly payment is typically lower than what they were previously paying in total for all of their respective debts. It is important to note that these benefits vary widely from one creditor to another and some creditors do not extend any benefits at all