Debt Consolidation FAQ

Debt consolidation is simply a method for creating an umbrella under which to place all outstanding debts into one new large loan or repayment program and proceeding with payoffs. There are a couple methods to use to accomplish this task.

Consolidating debt into a larger loan

This is where you obtain money from family, friends or a financial loan institution such as a bank or credit union in an amount large enough to pay off all the debt you wish to consolidate. By doing this you are left with a single loan, which will make managing your finances easier. It clears the deck, so to speak, of the old debt load. It replaces the old debts with one much larger new debt. In reality, you may end up paying more by the time you are done with the debt consolidation than you would have under the separate bills. This is due to taking a longer time for repayment and possibly having more interest in the final accounting. Even if you end up paying more, debt consolidation may allow you to improve your credit score and get on the path of financial health. Consolidating your debt will make budgeting easier, as you will deal with one single payment monthly.

A debt consolidation program.

You can do this via third-party, which can be a non-profit organization. They negotiate with the lenders you owe money to, trying to lower your interest rates, reduce the interest you already owe, and in some cases lower the loan principal. They can also propose a debt settlement plan, in which your creditors accept lower repayment installments. One thing to remember when using a debt consolidation program is that you still need to keep your spending under control. If you keep overspending, You don't stand a chance in your efforts to eliminate debt.

Do-it-yourself approach to debt consolidation

You may want to seek out and obtain a new credit account that is large enough to transfer the old debts over to, if your credit record is still in good shape. If you have damaged credit, the chances of getting a very large new credit account would be very slim to non-existent.

However debt is repaid, debt consolidation means that you bring all debt into a new form. The old financial obligations are retired and substituted for a larger loan, easier to manage.



Disclaimer: This article is provided for educational and informational purposes only and should not be considered a substitute for professional and/or financial advice. The information found in this article is provided "AS IS", and all warranties, express or implied, are disclaimed by the author.