What is Debt Consolidation

There are more and more people falling under the cloud of debt as the recession hits a fever pitch, both in the states and abroad. Consumers are looking for various ways to cut spending, lower bills and consolidate debt in general. People who don’t feel comfortable filing bankruptcy, but still want relief from high amounts of surmounting debt are often found turning to debt consolidation.

Not sure what debt consolidation is or what it aims to accomplish? Most people are in the same boat. When a consumer consolidates their debt, the main goal is to put all bills under one payment plan while also lowering interest rates and reducing added fees such as late payments or collections. In theory this sounds like a win-win scenario, but there are always aspects to analyze before initiating any type of debt reduction program.

Debt consolidation allows you to pay off your debts in full while still allowing you to manage your monthly expenses. There are several methods that can be used when looking to combine or pay down your debts; however you should be careful to weigh the risks and benefits of each before embarking upon a debt consolidation strategy.

In most instances, a company, non-profit, lawyer or financial planner will work directly with your creditors to lower your interest rates, cut your monthly payments and set up a payment plan that will allow you to get back on track with the least amount of hassle.

The term debt consolidation may seem complex, but the term is really self-explanatory. Any of your outstanding bills that are not secured will be placed into one monthly bill. This can include not only regular credit card debt but also medical bills, car payments, and other outstanding debts you may have. This lowers the number of cheques you have to write every month and it helps to make sure that your bills are paid on time. When your bills are paid promptly, you get the added benefit of a higher credit rating, lowered interest rates and you get to avoid nasty late charges.

Depending on the type of debt consolidation program you are enrolled in, you can also pay off your bills earlier than you would if you were to continue making individual payments. Some forms that can be found are loans for consolidating debt, home equity loans which are secured, and programs designed to help you manage debt. Each of these programs work in different ways to achieve the same basic result and that is to lower your overall debt load until those debts are totally paid off.

Dealing with a reliable and experienced financial professional is the best way to ensure that your individual needs are served while still allowing you to pay down your overall expenses. There are many online agencies that claim to be able to deliver results, but charge a fee upfront without offering results. Debt consolidation is a legal way to reduce your debt load, as long as the program you choose is administered by a trained and licensed professional.