|
homepage
How Does Debt
Consolidation Work? The Truth Plus How it Affects You
By David Kamau
Being heavily in debt can be extremely stressful. It hurts even deeper
when you have multiple creditors to deal with at the same time. Some
people opt to consolidate debt through a debt consolidation service.
But how does debt consolidation work?
You've seen the commercials on TV and heard them on radio. That debt
consolidation is so heavily advertised in the mass media means one
thing, it is good money-making business. And this is the reason you
should be careful. But let's first look at how it works, shall we?
Debt consolidation simply means combining most or all your debts so
you now have one payment to worry about instead of several different
ones with different due dates. This can be good, especially for your
own peace of mind. When you sign up with a debt consolidation company,
you are assigned a credit counselor. The counselor will go through
your finances with you and offer different options for getting out of
debt, or at least easing your debt burden. These options typically
include consolidation.
Assuming you've opted for consolidation, all your debts get combined
into one and a monthly payment is calculated that is supposed to clear
your debts in about three years. A good credit counselor will also
negotiate with your creditors and can often get your interest rates
reduced and late fees waived. But this does not happen right away. You
have to demonstrate your ability and willingness to keep your end of
the bargain. This means making timely payments for at least three
consecutive months.
You will mail your new single monthly payment to the debt
consolidation company, who will in turn disburse the funds to each of
your creditors. You will also be required to close your revolving
credit accounts such as credit cards, and not establish new accounts
for the period of the plan.
There both positive effects and negative effects of debt
consolidation. Positive effects include possible interest rates
reduction, not having to worry about multiple accounts, and the
possibility of becoming free of debt down the road.
Negative effects include possible negative impact on your credit score
due to closing some accounts, restricted access to new credit, and
ridiculously high fees that some companies charge. Look out also for
scam credit consolidation companies.
Discover credit secrets creditors and
bureaus don't want you to know plus tips for strategies for improving
credit score. David Kamau offers free self help credit repair tips at
his site and blog.
Article Source: http://EzineArticles.com/?expert=David_Kamau Platinum
Quality Author
Print This Article
|
