When dealing with a high debt load it’s common to look for something or someone to help “fix” the situation. You may have heard that Debt Consolidators can help, but can they really?
What are debt consolidators?
Debt consolidation is commonly misunderstood. Some people think debt consolidation is a loan that pays off their debt. Some people think that free consumer credit counseling and debt management is debt consolidation. In a sense, they are both correct. There are debt consolidation loans available that people can use to lump all of their payments into one loan. It also makes sense that a debt management plan offered through a credit counseling program would be seen as debt consolidation, but it’s completely different from a loan. Confused yet?
Breaking it down:
With a debt management plan you are typically able to make one payment through your credit counseling agency that is dispersed to each of your creditors (after they negotiate with the creditors to get benefits such as lower interest rates for the consumer). The big difference between this program and a loan is that the credit counseling firm does not lend you the money to pay off your debts up front. They are simply dispersing the funds to the creditors according to the agreements that are set up when you enroll. You are not borrowing or taking on any new debt.
In a debt consolidation loan scenario, the borrower is taking on a new debt to pay off the old. This can be risky if the behavior that led to the debt situation continues and the borrow is able to continue spending. You might end up with credit card debt AND a debt consolidation loan to pay off! It’s also increasingly difficult for a borrower to qualify for this type of loan without collateral to secure it. Lenders are increasingly reluctant to engage in unsecured loans – especially if there is any issue on the credit report of the borrower such as missed payments or charge-offs.
Should I consider debt consolidators?
You have to weigh the pros and cons for your specific situation before you make a decision. If you are ready to tackle your debt and get rid of it, then a debt management plan through a credit counseling agency might be the best solution for you. If you are looking for the convenience of one payment and still want to keep access to your credit cards then a debt consolidation loan could be right for you – if you have collateral to secure such a loan.
Taking on fresh debt when you are struggling with debt can be a risky proposition, so be sure that you know what you are doing before you sign on the dotted line with a debt consolidation loan. Be aware that these loans are increasingly difficult to come by and committed to curbing any spending issues that contributed to the financial situation.
If you are unsure of what your options are, seeking the advice of a professional is always wise. Free Debt Advice from a credit counselor can help clear up any questions you have and help you think through all your options. Get assistance from debt consolidators who can get you back on track instead of taking on more debt!
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Please don’t consolidate your debt unless you are willing to change your credit card habits.
If you change nothing and continue to use your credit cards irresponsibly, debt consolidation will hurt you more.
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