Nowadays, the average American family is carrying some sort of debt and that does not look like it is going to be gone anytime soon. It is pretty normal actually, with the unstable economic environment that we all live in. Even making your regular monthly bill payments can make you take out a loan. If that happens once, it is very likely that it is going to happen again. If you are carrying multiple debts, having to make and keep track of several different loan payments at the end of every month, you probably are going to need some help to get to the point of debt relief and ultimately regain your financial stability. Having to deal with debt, especially if you have a couple of loans to repay, can be really stressful and exhausting. If you are going through this, then a debt consolidation program could be the answer to your trouble. To help you make a better decision on your financial future, we will help you get a better understanding of what a debt consolidation is and how it can actually help you.
What is a debt consolidation program?
Debt consolidation programs are financial tools which you combine all of your current debts into a single monthly payment. Normally, a debt consolidation program is a service that you can find with credit counseling organizations and companies. You make a single monthly payment to the debt consolidation company that you are working with and that company forwards the money to all of your creditors.
The terms of a debt consolidation program can be a bit confusing. The first thing that you should know is that a consolidation plan and a debt consolidation loan are not the exact same thing. With a debt consolidation loan, you do get all your debts combined into a single payment, but that happens by combining your multiple debts into a new loan that you have to take out. Both debt consolidation loan and debt consolidation program usually lead to pretty much the same results, however, they work quite differently:
- You most likely get a lower monthly payment than the one before using the service.
- In both cases, you make just a single monthly payment instead of making multiple payments for each and every one of your loans.
- In both cases, there is the possibility of ending up repaying your debt for a longer period of time.
- In both cases, it is rather common that you will get a lower interest rate. However, if the repayment period takes more time, you may still end up paying more money on interest overall.
If you are having difficulties in differentiating the two services, we will once more point out the biggest difference between the two. With a debt consolidation loan, you are getting your debt combined into a brand new loan. With a debt consolidation program, you get help with paying off your debts as they are, without taking out any new loans whatsoever.
In case you have a rather good credit score and you also have a good job and a good and stable source of monthly income, going with a debt consolidation loan may be the best scenario for you. However, if you do not have a good credit score and your monthly income is not that good either, you may want to consider using a debt consolidation program. Regardless of what your choice is, do proper research on both options and compare the different terms you will get with both and the overall amount that you will end up paying. That way, you will be able to choose the service that can benefit your specific financial situation in a better way.
How does a debt consolidation program actually work?
Simply put, using a debt consolidation program means – getting help with managing your debts. By working with a for-profit company or a non-profit credit counseling agency, you will create a system to eliminate your debt within 3 to 5 years.
To get a better understanding of the process, here are the basic steps that you have to take when choosing to use a debt consolidation program:
Getting counseling is always the first step that you need to take with a debt consolidation program. You will have to talk with your debt consolidation program provider to determine whether that debt consolidation provider will be able to help you or not. If the answer is yes, you will need to work together to make a plan for your debt repayment. Talking with someone from the debt consolidation program agency will give you plenty of information as you will learn more about what a debt consolidation is and how it works. You will also be able to ask and get information about the fees that you are going to have to pay and how that debt consolidation program organization works. If you do not like what you are hearing, you can always end the conversation and find another debt consolidation company.
You will have to pay fees
Although there are some non-profit debt consolidation organizations, you should still expect to pay at least a setup and a monthly fee. Compare the fees of different debt consolidation agencies, and pick the one that offers the best terms. When you are going through a difficult financial situation, every dollar has a big value.
Thing that you should know
Keep in mind that these programs are only for unsecured debts. Also, you should know that with a debt consolidation loan, you will be able to keep your accounts.