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Debt Consolidation FAQs

  • Who can benefit from debt consolidation?
    Anyone who is managing multiple credit card debts and other loan payments each month could benefit from debt consolidation. Additionally, those struggling to make the minimum payments on their multiple debts could benefit from this financial solution.
  • What are two ways to consolidate debt?
    You can consolidate debt through a debt consolidation loan or a debt consolidation program.
  • How does a debt consolidation loan work?
    A debt consolidation loan is a new loan that is used to pay off multiple debts. There are two types of debt consolidation loans: an unsecured personal loan and a secured loan, such as a home equity loan.
  • What are the benefits of a debt consolidation loan?
    A debt consolidation loan replaces the need to juggle multiple monthly payments and due dates with one monthly payment. Additionally, the interest rates on debt consolidation loans generally are lower than those associated with credit cards, and the interest paid on a home equity loan is tax deductable in most cases. Finally, a debt consolidation loan offers extended repayment periods that, in combination with the lower interest rates, typically equate to lower monthly payments compared to the total amount paid toward multiple debts.
  • What does a person need to consider before securing a debt consolidation loan?
    While a debt consolidation loan often offers lower interest rates than most other loans, the extended repayment period associated with a debt consolidation loan could cause you to end up paying more interest in the long run compared to the interest that you would have paid on multiple debts. Additionally, if you are consolidating debt with a home equity loan, you should keep in mind that once the loan is secured, your home is now on the line - if you default on the loan, you could lose your home.
  • How does a debt consolidation program work?
    A debt consolidation program is a service that works directly with your creditors to help you pay off your debts. When working with a debt consolidation program, the service coordinates all payments to your creditors - you need to make only one payment per month directly to the service.
  • Are there fees associated with a debt consolidation program?
    Yes, there are fees associated with a debt consolidation program. Generally, you will need to pay a one-time representation fee, which covers the service's initial contacts with your creditors, and a monthly representation fee.
  • What are the benefits of a debt consolidation program?
    A debt consolidation program often negotiates with your creditors to secure lower interest rates on your debts, which in turn results in lower monthly payments and less interest paid in the long run. Additionally, those who participate in a debt consolidation program need to worry about making only one payment per month versus multiple payments. Finally, a debt consolidation program offers its clients debt counseling to help them learn how to better manage their finances and avoid falling into significant debt again.
  • What does a person need to consider before hiring a debt consolidation program?
    When you work with a debt consolidation program, the service should be able to outline for you the total amount you will pay, including all fees, during the repayment period to ensure that you do not end up paying more than you would have if you had continued to manage multiple debts. Additionally, you should research potential debt consolidation candidates carefully, making sure that the program you select is a reputable business that will not take advantage of you. Finally, while working with a debt consolidation program, you will have to follow pretty strict guidelines, including not opening any new credit cards or transferring any balances.
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