A Debt Consolidation Program is a consumer credit counseling service helping individuals consolidate unsecured debt into one easy payment so that they can get out of debt in 4 to 5 years. In addition to lowering monthly payments, many creditors will reduce or eliminate interest and stop charging late fees. Most importantly, past due accounts can be brought current in many cases.
Debt consolidation may be able to help you:
- Lower your monthly payments
- Reduce interest rates
- Waive late fees
- Reduce or Eliminate collection calls
- Avoid bankruptcy
- Have only one monthly payment
What debts are included?
The majority of accounts included in a debt consolidation plan consist of unsecured debts like medical bills, credit card bills, student loans and some payday loans. However, payday loans and student loans may not be included by certain plans.
When do you need a program?
- You have multiple bills and cannot manage them efficiently.
- You’ve tried out self repayment plan but it has not helped you to overcome your problems.
- You’re in financial crisis and wish to get rid of your debts.
- You want to stop getting collection calls.
- You want to lower the interest rate on your bills.
How do you benefit?
Debt consolidation is different on a case by case basis, but generally it may help you to:
- Lower interest rates
- Make one convenient payment per month
- Stop late fees and penalties
- Reduce or eliminate harassing creditor calls
What happens in a program?
A debt consolidation agency evaluates your current financial situation, taking into account the interest rates on your bills, total indebtedness and the required minimum payment. Once you enroll for consolidation services, a debt consolidation agency works on your behalf to negotiate with your creditors to lower the interest rates and monthly payments. You’ll make a single monthly payment to the consolidation agency. The agency then disburses the payment to your creditors. This goes on for approximately 3-4 years or until you have paid off your bills.
Does a program affect your credit?
When you’re in a debt consolidation program, your credit report shows that you are making payments through a consolidation company or credit counseling agency. However, the credit rating agencies will not consider the program while calculating your credit score. What does happen, however, is that your accounts are closed and closed accounts may change your debt to income ratio. The change in your DTI ratio may affect your credit score.