How does debt consolidation program lower your rates and payment?

Debt consolidation program helps you pay off your unsecured bills through an easy and single monthly payment plan. This program helps you make only one payment instead of 7 or 8 in every month.

How can these programs help you start a new financial life?

  • Help you make lower payment every month
  • Help to reduce the number of calls you get from creditors
  • Leave you with only one monthly payment plan
  • Help you repay your bills within 2-5 years
  • Help you improve credit gradually
  • May help you knock out the fines and/or late fees

You can check out the benefits of these programs to know how they help you get a fresh financial start.

What kind of bills can be paid off through the program?

  • Credit card bills
  • Store cards
  • Personal loans
  • Medical bills
  • Collection accounts
  • Other unsecured bills

Student loans Can be paid through secured/unsecured debt consolidation loans

How much
debt consolidation
can save you

What factors do you need to consider before the consolidation of debt?

How much you want to consolidate
A company may require a minimum amount of debt for you to enroll in the program.
How much you've to pay on fees
Check out the fees and calculate whether or not you're able to pay the amount every month.
How much you need to pay for an interest rate
The main benefit of consolidation is to lower interest and reduce monthly payments. However, repayment term should not be more like opting for it may result in more spending in the long run.

How do debt consolidation programs work?

Check out these 5 steps to know how do debt consolidation programs work:

1 No-obligation free financial analysis – Debt counselors make a thorough review of your income and expenses, along with your debts, to decide upon an affordable amount you can pay every month.
2 Sign a written agreement – You can ask questions (such as fees, monthly payment amount, etc.) during the counseling session. If you're happy and satisfied with the session, you can sign up for debt consolidation services.
3 Get relief from the creditor calls – Once you've cleared your doubts and signed required documents, the counselor starts negotiating with your creditors to lower interest rates and eliminate late fees. They also put forward the payment plan.
4 Make one payment to the company – After the counselors finalize a payment plan, which is accepted by all the parties, you start making the single monthly payment to the company. The consolidation company then disburses the amount amongst your creditors.
5 Re-assessment of your financial situation – Usually, after 180 days, the counselor asks you about your financial situation. If it has become worse, notify the counselor so that he/she can re-negotiate a new payment plan with your creditors as per your current situation.

Pros and cons of consolidation

The pros and cons of consolidating your bills are given below.

Pros

Get reduced interest rates

If you're in a debt consolidation program, the consolidation company you're working with will negotiate with creditors so as to lower your interest rates. So, it'll be comfortable for you to pay back your dues in small monthly repayments.

Single payment vs many

When you enroll in a consolidation program, it enables you to replace several bills with a single monthly payment which you can easily manage. Whereas, when you apply for a consolidation loan, you can pay off your dues with a lump sum payment after which you'll have to repay the loan at a low rate of interest. Anyway, both the options help you to replace several bills with one small repayment per month.

Positive item on credit report

When you consolidate and repay your debts in full, the accounts are updated as "Paid in Full" in your credit reports. It can help to improve your credit score.

For further details, check out the information on benefits of consolidation.

Cons

It may take longer to get out of debt:

With a consolidation program, you can get debt free within 4-6 years. But when you take out a consolidation loan to repay multiple bills, you remain in debt until and unless you repay this loan. The consolidation loan is usually a long term obligation, so it'll take you quite long to free yourself from such a liability.

Total interest on loan may be quite large:

When you pay off several bills with a large amount of consolidation loan that charges a low rate of interest, your monthly obligations become easily manageable. But the long repayment period of the loan makes you pay much more in total interest over the life of the loan.

High fees for program and loan:

There are consolidation companies and lenders who may charge you a lot of fees for offering their services. You may come across companies which scam consumers by charging fees well beyond the maximum limit set by the state where you reside. To avoid this, compare fees with different companies before you for a consolidation program or loan.

How can you get the best debt consolidation program?

  • Ask your friends to suggest you a good company
  • Find out customers' views regarding the company
  • Check out the accreditation of the company
  • Get detailed information about the program
  • Try to know if the counselors are certified

The right way to choose the best debt consolidation program is to make a comparative analysis of different consolidation companies in your locality. Check out the list of some reliable companies and then compare the programs to choose the best one for yourself.

What are the reasons behind the popularity of online debt consolidation?

  • You can get a fresh financial start
  • Your payment process can get accelerated
  • You can get debt consolidation help 24*7
  • Easier for you to make your monthly payments quickly
  • You can compare various online companies from your home
  • You can get free counseling online and save time
  • You may get fast debt consolidation service

Can you consolidate multiple bills for free?

No, most companies do not offer free debt consolidation service. However, here are 2 ways by which you can consolidate your bills for free.

Consolidate your bills all by yourself
You can negotiate yourself with your creditors and set up a reduced payment plan. Check out the steps to consolidate bills yourself.
Get help from a non-profit company
You can approach a non-profit debt consolidation company to consolidate your bills by paying a nominal fee.

Last Updated on: Wed, 23 Sep 2020