For many people, nowadays, it is a very hard task to sustain a good financial state. With life getting more expensive, there are many families out there, who, despite all their effort, have real trouble with paying their monthly bills. In today’s society, having a job with a steady monthly income and working hard may be no longer enough to make you feel financially safe. There are many hardworking families out there that barely make enough to meet their monthly payments. And monthly bills are not all you need to worry about as there could be emergency expenses.
The expenses, however, does not end with that either. In order to be successful in life, most people need to have a college degree and to do that, they need to spend a lot on education. Since many college students cannot afford to pay for their education, they use student loans. Student loans are typical for education costs and while they usually have rather good terms, you can sometimes end up repaying such a loan for the rest of your life.
And while getting a student loan is considered a kind of self-investment, there are many other loans that people get just to be able to deal with their monthly expenses. Once the number of your loans starts growing, it is pretty hard to repay all your debts and people often start taking out one loan after another to pay for the previous one. Once you are in that situation, you may feel like all hope is lost. However, there is a way for people with multiple loans to regain their financial stability and be free from their debt. That can happen with a debt consolidation. There are different debt consolidation programs designed especially for people repaying multiple loans. Such programs aim to help people to repay their debts faster and make the process simpler. Below we will explain what a debt consolidation is and what a debt consolidation program is.
What is consolidation?
Debt consolidation is a way for people with multiple loans to repay their debt. It turns all their loans into one single, a larger loan with a single monthly payment. Debt consolidation can be used for many loan types, including – student loans, payday loans, credit card debt, payday loans and many others. With some loan lending companies even offer bad credit debt consolidation loans to their customers who do not have a perfect credit score. The usual way of consolidating loans is with a debt consolidation loan. With a debt consolidation loan, the borrower takes out a loan that is a combination of all his current debt. That way, he does not have to think about multiple payments but focus only on a single monthly payment. When consolidating your loans, you can usually get a better interest rate than what you are paying for all your smaller loans currently.
Consolidation, however, is not something that should be seen as a completely safe option with no risk involved. If you do not pay attention to every detail of your debt consolidation loan contract, you may get a debt consolidation loan with terms that are not much better than what you are already paying on your multiple smaller loans. With that being said, however, in most cases, when you are experiencing trouble with repaying multiple loans and making a number of monthly payments of different accounts, consolidating your debt is quite possibly the best thing you can do get your finances back in order.
What is a debt consolidation program?
Debt consolidation programs are services offered by different credit companies and organizations, which combines multiple loans into only one monthly payment. When using such service, you make a single monthly payment to the debt consolidation company, after which that company takes care of all your loan payments. The terms of a debt consolidation program can be quite confusing. A debt consolidation program should not be mistaken for a debt consolidation loan. With debt consolidation loan, you get a completely new loan that is a combination of all your current debt. With debt consolidation programs, you use the services of different companies to make your repaying process much easier, however, you are not taking out a new loan. Both debt consolidation approaches work in a very similar way and therefore have pretty much the same end result. Yet, the way they work is quite different.
- Instead of multiple loan payments, you make just a single monthly payment
- You will most likely have lower interest and fees, however the opposite is also possible
- The process may take a longer time to repay your debt
- You probably will have a lower monthly payment than the one you were paying before
You must understand and remember the difference between a debt consolidation program and a debt consolidation loan. With a debt consolidation program, you get a service that helps you repay all your current debt while with a debt consolidation loan, you combine all your debt into a new, larger loan. Compare the terms that different companies offer you for both options and decide which one is the best for you.
How do debt consolidation programs work?
Debt consolidation programs are services that help you to manage your debt in a better way. By using the services of a for-profit company or a non-profit credit counseling organization, you will make a plan and a specific system that will eliminate debt within a period of 3 to 5 years.
Try counseling first
If you want to use a debt consolidation program, the first step you should be taking is counseling. You need to contact the provider of the service and speak with a consultant to find out how they can help you. Doing this will help you learn more about your debt, get information on different fees and the ways that such organizations work. If you do not like what this particular organization is offering you, go and find another one.
Be prepared to pay fees
Although such organization may be non-profit organizations, you should still be prepared and expect to pay a monthly fee for their services. When you are choosing an organization to work with, it is a good idea to compare the different fees among the organizations that you are choosing from. If you are about to work with such organization, you most likely are experiencing financial difficulties, therefore, every dollar should matter to you. Pick the organization that offers the best terms and move on.
Only unsecured loans
Keep in mind that debt consolidation programs are meant for unsecured debt only. That means that the loans you want to use a debt consolidation program for should not be secured by any collateral (loans like title loans and home loans would simply not work). You can get a debt consolidation program only for unsecured loans, such as personal loans and credit card loans.
You will keep your current accounts
When using a debt consolidation program, your current debt will remain where it is. Unlike a debt consolidation loan, you are not getting your debt moved to a new loan. You will have to make a single monthly payment to the company that provides the debt consolidation program service, after which that money will be distributed to all your loan lenders and creditors. Your debt consolidation program provider will communicate with your creditors during the program’s setup process and also while the program is progressing.
Your amount of debts should remain the same
What you want to achieve with this service is to get rid of all your debt, so adding a new one will not make much sense. You will need not only to close most of your credit cards but also to agree not to take out any new loans while the process of repaying all your current debt is complete.
You may get lower payments
In the best case scenario, you will have a lower monthly payment, but most of the money will go to debt reduction. There is also the possibility of interest rates cuts and even getting some of your penalty fees reversed. While all of this sound too good to be true, there is a catch as you will be paying fees to your debt consolidation program service provider.
The effect it is going to have on your credit
If you decide to use a debt consolidation program, it may hurt your credit. Your debt consolidation program service provider will have negotiations with your lenders and in the end, you may end up paying less each month than what you were paying prior to the debt consolidation program. However, as a result of that, your credit score may take a hit. If you are going into the debt consolidation program with a good or even perfect credit score, you will surely notice the difference in it. If your credit score is not that good to begin with, you may not even see a change.