Is Consolidation the Answer to Your Debt Problem?

Reducing debts can be an overwhelming task especially if you are dealing with different creditors. For multiple debts, credit counselors often advise consolidation to simplify the burdensome task of debt management.

Different Methods of Consolidating Debt

There are actually different ways to consolidate debt. The most popular method is by acquiring a loan from a lender and using the amount borrowed to pay all existing debts. A debit consolidation loan is usually secured with collateral although some lenders do offer unsecured loans for debt consolidation. As can be expected, unsecured loans are often limited to a smaller value and may come with higher rate of interest.

Another way to consolidate is to sign up for a debt repayment program with a credit repair agency or debt consolidation company. Under the program, the borrower will submit payments to the agency, who in turn, will distribute payments to corresponding creditors. This arrangement may be recommended for people who are having a hard time managing different due dates and dealing with different creditors.

For people with credit card debt, one way to consolidate is to get a credit card with zero introductory rate. By transferring balances to the zero APR card, the cardholder can significantly reduce monthly payments and save money by not paying additional interest charges.

Is Debt Consolidation the Answer?

Keep in mind that not all agencies that offer debt consolidation loans or debt consolidation programs are worth trusting. Sometimes, even so-called “non-profit” organizations may take advantage of consumers with bad credit problem by imposing hidden fees or unreasonably high interest rate.

It is very important to create your personal repayment plan to make sure that you will not miss or fall behind your consolidation payments. Remember, if you have consolidated your debts through a secured loan, there is the risk of losing your property to your lender if you default with your payments.

Last but not least, people who sought debit consolidation must be very careful not to incur new debts while in the middle of repayment. Unfortunately, many consumers found themselves stuck in a deeper dilemma because they have carelessly incurred new debts half-way through debt consolidation. As a result, they ended up having more debts than they had before they consolidated, complicating the problem.

Yes, successful debt consolidation will depend on three things. First, the borrower must find a trusted debt consolidation company. Second, the borrower must be able to keep up with his/her debt consolidation payments. Third, the borrower must avoid incurring new debts while in the middle of the debt consolidation.


About the Author:

Suzy Vanstrusen is a credit analyst and a writer on the website She has been providing consumers with tips and wise information about credit repair as well as helping you out more with your bad credit loans.  Copyright © 2010

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