The whole idea of debt consolidation is self explanatory. If you have more than one debt, you will combine them so you only make a single but bigger payment instead of several small ones.
This concept refer to more than one type of debt relief option. One of them is taking out a huge amount of loan to cover the smaller credits that you owe. This is called a debt consolidation loan.
The other option involves a third-party company who will handle payments for you. The company being referred to are credit counseling and/or debt management companies. It involves the enrollment in a credit counseling or debt management program where the debtor will send all their credit payments to this company and it will be distributed to their respective creditors in their behalf.
The goal of debt consolidation comes in two forms. One is to help make your debt payments more manageable by combining it. The other is to help lower the monthly payments that you make.
For the latter goal, do not think that the reduction will be significant. It will not be like debt settlement that aims for an average of 30%-80% of your balance to be forgiven. Usually, you end up with almost the same amount of balance than when you started. There will be, however, an elimination of the service fees and other charges from all the credit cards that you owe if you consolidate them into one loan. Also, by getting the right loan, you can effectively reduce the interest rate that you have to pay for every month.
In a credit counseling or debt management program, the debt professional working on your case will usually try to negotiate with the creditors on your behalf. They will try to have your interest rate lowered and other fees and charges waived off. If you have late payment fees, they will try to have these removed as well.
The thing about credit card debt is you need to do something about it otherwise the interest rate, finance charges and late penalty fees will eat you up. It will keep on piling up. Credit card interest rates are so high that you could end up paying for your debts until you die of old age. So if you want to get out of it, you need to do something about the interest.
Some people (even financial experts), believe that debt consolidation loans is not a great way to get out of debt. It just seems like digging a hole to cover an old one. However, there are circumstances that makes it the best option to go for.
Among the other debt relief options, this is the one with the least effect on your credit score. While your score will reflect negatively once that loan is already approved, it will rise immediately as long as you keep up with this single payment obligation.
In truth, the real danger lies not in the concept of consolidating debt. It lies in the attitude of the debtor going through this debt relief option. Sometimes, people have a false sense of having lower debt obligations because it is not more manageable under a single payment. Once that big loan pays off their credit cards, it is quite easy to fall back and use them again.
In any case, people in debt should always go to the root of the problem - how you got into so much debt in the first place. It is important to not only pay off your debt but to make sure never to be in that situation again.
Click Here to compare debt consolidation and credit counseling. See which program is the best way to get out of debt. Learn about all the benefits of debt relief here: http://www.nationaldebtrelief.com/debtreliefbenefits/
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