Should I Apply for Debt Consolidation?
Are you in debt with multiple credit card or other kinds of companies? Have you considered pursuing debt consolidation to help fix your debt? This article will provide some of the hidden insights involved with debt consolidation to help you determine if it’s the best course of action for you.
What is Debt Consolidation?
If you owe money to several different credit card companies, a debt consolidation plan would consolidate or combine the debt into a single loan or single monthly payment. The amount of your monthly payment usually depends on the total debt amount, interest rate, and payment terms of your consolidation loan (Nolo.com). Debt consolidation can also be referred to as a country’s fiscal approach to corporate debt or Government debt.
Role of Consolidation Company
The role of the debt management company (or debt consolidation firm) is to negotiate with the credit card companies you have debt with to reduce either your interest rates or your monthly payments. After they’ve negotiated a deal, you will make a single payment every month to the consolidation firm. A portion of this money will be distributed to each of your creditors and/or to the consolidation firm to cover its fees (Nolo.com).
Many debt consolidation firms require several high fees for services; including interest fees, up-front fees, and monthly fees (USNews.com). This will add up over the several years they extend to help you pay off your debt.
Choosing to deal with debt via consolidation can mean a drop in your interest rate or monthly payment, but could also mean an extension of the time it takes you to pay off the debt. In this case, you might end up paying more for the new loan than if you had just paid off the original debt amount to all credit card companies (DaveRamsey.com).