Debt Consolidation Service

Using a debt consolidation service can be a great way to put all of your outstanding debt together in one place.  With this type of debt service, you can convert your smaller loans, outstanding credit card balances, and leverage the attractive terms you can get with one larger loan.  But the benefits of using a debt consolidation service come at a cost.  Let's make sure you are prepared to work with a debt consolidator.

Understanding Debt

We've all read the debt statistics that explain to us how much debt the American public is holding.  The national debt is rising, and economists debate the benefits and costs associated with our present economic growth approach.  Unfortunately, there is a big difference between the debt the federal government is taking on and that of the average American household.

As long as foreign governments have faith in the U.S. economy, that debt can continue to rise without fear or repercussions.  As far as individuals are concerned, creditors and lending institutions may not be confident that individuals will be able to pay off the money owed them, and for good reason.  The government can always raise taxes to lower their debt or balance their budgets; individuals don't have that luxury.

What Causes Debt Problems

Using a reputable debt consolidation service is a good way to help lower your overall monthly costs.  Let's first turn to the business world, and look at one of the basic, fundamental measures of a good company.  Arguably, the most important statement that creditors and lenders look at is the income statement where:

Income - Expenses = Profits or (Loss)

Individuals can get into trouble when they disregard this basic rule regarding profit and loss.  When household expenses outpace family income for too long, "losses" will continue to mount and debt will increase.  At first, these losses might be hard to recognize because they are masked by a large line of credit offer by a credit card company.  Eventually, they will get your attention.

Managing Debt with Budgets

Most companies strive to be profitable.  To keep them on course, they use budgets.  As consumers, we can learn from budgets by examining where money comes from and where it goes.  Many of us only have one or two sources of family income, so that part of the equation is easy to understand.  It's the expenses that are a more difficult for us to calculate each month.

We're not trying to discourage the use of a debt consolidator, but you owe it to yourself to make sure you can stay out of debt over the long haul.  Our article on Budget Worksheet is a great start for individuals that have never built a budget in the past.  Remember, the goal is to eventually be debt free, or at least feel more in control of your debt.

Debt Negotiations

Another alternative to debt consolidation is debt negotiation.  This is the process of working with your creditors to see if more realistic payment arrangements, sometimes referred to as deferred payment arrangements, can be secured.  For example, if your electric utility says you owe them $800, are they willing to let you pay off that amount over the next six months?  If you are having short term trouble making your monthly payments, then negotiating with creditors may help.

Just be aware that when you call a company about a deferred payment arrangement, they may get even more aggressive with their collections activities.  Don't count on sympathy from the collector, they are trained professionals that are used to hearing what they believe are "lame" excuses.

You are much better off taking a humble approach, explaining the facts behind your situation, offering a payment solution, and negotiating from that point.  If you're not good at negotiating, then you might want consider hiring a firm that specializes in supplying debt negotiation services.

Consolidating Debt

We have offered several viable alternatives up to this point, but if you're still convinced that you need the help of a debt consolidation service, then here are some final pointers.  There are some big advantages of having one large loan that puts all of your debt together in one place:

• It satisfies the money owed creditors, thereby reducing collections activities.
• You gain the benefit of lower monthly interest charges, versus the rate charged on a credit card balance.
• Finally, you can gain a better understanding of the total amount of debt you are carrying.

This kind of service also comes at a cost.  It is very likely that the debt you are thinking about consolidating is unsecured debt.  A utility cannot make you give them the energy back - it is consumed.  A debt consolidation loan will likely be a secured loan that requires collateral.  Unless you own something that is very valuable, it is likely that your home will be used as collateral on the debt consolidation loan.

Because your home is used to secure the consolidation loan, debt consolidation is a serious matter.  If you stop making your monthly payments, or start missing payments, then you risk the possibility of foreclosure on your home, or the seizing of your assets.  The service provided by these companies certainly helps a lot of people to deal with their financial problems, but make sure you have the basics down first:

• Lifestyle - take a close look at your lifestyle, and make sure you have enough income to support the one you're living.
• Budget - put together a budget to help you understand where the money coming into the household goes each month.
• Plan - lay out a profitable plan, one where your income is greater than your expenses.
• Monitor - pay close attention to the numbers each month, and you should be able to work your way out of debt.

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