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If you have unpaid bills that are reaching a point where they are becoming overwhelming, then you might be thinking about contacting a debt consolidator. A debt consolidator is a company, or service, that helps you to reduce your existing monthly payments by consolidating them into a more manageable loan.
Finding a Good Debt Consolidator
Using a debt consolidator can certainly help some people to get out of debt. But you should be aware that not all debt consolidators offer the same level of service. For example, a good consolidation company will help you negotiate payment plans with creditors, and help you learn how to manage a budget. This prevents you from winding up in the same situation after taking out a consolidation loan.
The Debt Consolidation Business
The way debt consolidators make money is by building a fee into the monthly payments you make to them. They take your payments and pass them along to your creditors. In turn, creditors may turn around and pay a rebate to the consolidator. This is acceptable to the creditor since the debt consolidator is helping the creditor collect money from a debtor. From a creditor's point of view, a reduced payment is better than none.
Debt and Bankruptcies
Debtors always have the option of filing for bankruptcy instead of trying to pay off a creditor. For most individuals, bankruptcy means either Chapter 7 or Chapter 13. Bankruptcy under Chapter 7 means that your personal property can be sold to pay down some of your debt. After the sale of all assets, some of the remaining debt will likely be forgiven. Bankruptcy under Chapter 13 allows you to work out a payment plan with a term of roughly three to five years.
Bankruptcy should never be considered an easy way out of debt. In fact, some debts might not be forgiven under a personal bankruptcy. You will likely still be responsible for child support, income taxes, and most of your student loans. Plus, filing for bankruptcy will make getting credit in the future very difficult. You may also have to pay attorney fees to go through this legal process.
Debt Consolidation Options
So what exactly are the debt consolidation options that go beyond the help of a debt consolidator?
- Home Equity Loans - A home equity loan will usually carry a low interest rate, and the interest you pay will be tax deductible.
- Personal Loans - If your credit card company is charging you a 20% annual percentage rate on your outstanding credit card balance, then a personal loan will offer you better monthly payment terms.
- Debt Counselors - Many debt counselors work for not-for-profit organizations that are willing to help you find a way out of debt. The nice thing about working with a debt counselor is that they will help you to stay out of debt by creating a realistic household budget.
There is little doubt that a debt consolidator can help you - if you can find a good one. But you need to be careful in all matters concerning money. If you are desperate to find a solution to your debt woes, then you need to be aware that many people are willing to take advantage of your situation. Those types of services will only help to drive you further into debt.
Debt Consolidation Help
We've mentioned some of the good and the bad in earlier articles. You might want to take a closer look at our Christian Debt Consolidation article to see what those services have to offer. You might also want to check out our article on Debt Elimination for ideas on how to reduce your debt. Finally, if you looking for a debt consolidator because of problems with credit cards, check out our article - Credit Card Debt Consolidation.
Debt and Loan Calculators
We also have a wide variety of debt and personal loan calculators. You'll find all of these useful tools in the calculator section of this website. In particular, you might want to look at calculators offering help with debt consolidation, mortgage refinancing, and paying off loans.
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