Debt Consolidation

People who are faced with mounting debts and unpaid bills would most probably have thought of the phrase ‘debt consolidation’. We hear it over and over again, but what exact does it mean? And how does it help those who are in heavy debts?


A common misconception is the debt consolidation is a loan. That is not true. The process of debt consolidation consists of reorganizing the outstanding amount that you owe to your creditors and paying them back under new terms and conditions. The advantages of debt consolidation are that it reduces the total overdue amount and it also decreases the interest rates. Another plus point to debt consolidation is that it can erase financial charges.


In other words, debt consolidation is a process through which the consumer enters into a new contract which helps him or her pay off the old debts with lesser monthly installments.


People often confuse debt consolidation with consolidation loan. However these two things are not the same. To put it simply, consolidation loan is a long term loan that is meant to help you pay off your current debts. The interest rates for a consolidation loan might seem low, but because this is a loan that you have to pay off over a long period of time, the end result is that you will end up paying a lot more money over the years. Because of this catch in consolidation loans, debt consolidation is most probably a better way of paying of your current debts.


Debt consolidation has many benefits to it. For a start, the process of debt consolidation works at doing away with or reducing your past interest and penalty. Another way of saving you money is by consolidating your credit cards so that you do not have to keep track of all the different bills and payment dates. Through debt consolidation all your bills and accounts will be consolidated into one, making payments and keeping track of payments easier for you. Another benefit of debt consolidation is that it reduces the average interest rate on the total amount that you have overdue. A fresh debt consolidation plan is also a good way of coming up with a new payment plan according to your current abilities. A competent consolidation consultant will ensure that new payment plan is structured according to how much you can afford to pay at that point in your life.


The bottom line of debt consolidation programs is to allow you to get rid of your debts as soon as is practically possible. The result of which is that you will at last be free of calls from your creditors and in the long run you will get a new chance to re-establish your credit rating and have a more relaxed life.

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