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Learn
about debt consolidation.
WHAT IS DEBT CONSOLIDATION?
“Debt
consolidation”: it’s a buzz-phrase we often hear
being bounded about these days.
Though, what
exactly is debt consolidation and why would you
want to consider debt consolidation?
Simply put,
debt consolidation is where you take a lot of
your small debts and “consolidate” (put them all
together) these into one or two large debts.
Here is some
basic information on debt consolidation:
How
to Consolidate your Debts
In order to do this, you can either
approach one of your existing creditors with a debt consolidation plan, or
else you can talk with a third party lender about the possibility of taking
out lending with them in order to consolidate your existing outstanding
debt.
In this regard, it is very important to understand that “debt consolidation” is
not new money lending. Any lending you are given is merely to consolidate the
existing debt you have, and the lender will ask you to declare and account for
this. So, although debt consolidation may be considered a “loan”, it is not a
loan in its purest form.
Reasons to Consolidate Debt
The overall reasons why you may wish to consider debt consolidation are
two-fold:
In order to try and reduce the cost of
your existing debt funding.
In order to try and do away with all the
mess of having to pay back lots of creditors and instead concentrate on one
or two large creditors; thereby hopefully making your money management
problems much more manageable.
As you can see then, given the right circumstances, debt consolidation can be an
extremely useful debt management tool. However, if you are considering debt
consolidation as a means of managing your existing outstanding debt, you should
also note that there are two ways you can put in place an effective debt
consolidation program: (1) by yourself; and (2) using a debt counseling service.
Should you Consolidate Debt by Yourself?
In short, debt consolidation programs undertaken by you are by far the cheapest
form of working this useful debt management program. But, self-regulated debt
consolidation programs do require a certain level of discipline. They do require
you to arrange for one or two creditors to accept to take over your existing
smaller debts.
They also require you to make payment to this creditor in a timely manner. In
other words, there is no financial overlord looking over your spending and
making sure you stick to a workable financial diet. For this reason many of us
who consolidate our debt believe we have just been given a new lease of life and
go out and spend, spend, spend. The net result of this is not only do we now
have new debt to repay, but we also have the large consolidated debt to repay.
As such, self-regulated debt consolidation may not be the most effective debt
management tool.
Debt Counseling Services
Conversely, debt counseling services are where you tell a debt counselor what
all your existing outstanding debt is. The debt counselor then either arrangers
with your existing debtors to negotiate with him going forward with regard to
the outstanding debt, or arranges to consolidate all the outstanding debt as one
large debt. You then pay the debt counselor a monthly payment, which he then
either distributes to all of your existing creditors or pays towards the one
large debt. For providing this service the debt counselor takes a commission off
of you; thereby making this form of debt consolidation more expensive, but at
the same time probably more effective.
Learn
about debt consolidation.
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