Debt consolidation is a method that is sometimes used to combine debts from several different accounts into one debt with a lower monthly payment. Debts that are often consolidated are credit cards, medical bills and other unsecured loans or debts. Debt consolidation programs are offered by many credit counseling services to assist those in debt with managing their finances and dealing with their creditors. Consumers may use unsecured loans, home equity loans and other forms of financing to pay off smaller debts that carry high interest rates or are at risk of collections.http://www.lendingtree.com/debt-consolidation/ The debt consolidation loan is then the only remaining monthly payment.
Debt Consolidation Programs
Debt consolidation programs provide assistance to consumers that are unable to secure a consolidation loan on their own. These programs involve a third party, often a credit counseling service, that will negotiate with the creditors to secure a lower interest rate or to settle the account for less than what is owed. Once the terms of the consolidation are determined, the consumer pays one monthly payment. This monthly installment is then forwarded to each creditor. Other terms of the consolidation are the length of time until the debts are paid in full, any fees that are associated with the debt consolidation program and the terms that the creditors have agreed to for accepting payment. http://money.howstuffworks.com/personal-finance/debt-management/debt-consolidation.htm
According to the Federal Trade Commission, debt consolidation programs are not permitted to require an advance fee for their services. The FTC provides additional information regarding debt management programs and services along with precautions that consumers can take to avoid falling victim to a scam or program that is practicing unlawfully.http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre26.shtm
Debt Management: Debt Settlement a SCAM?
Suze Orman illustrates how a debt consolidation company operates on your behalf to negotiate credit card debt. In attempts to avoiding debt consolidation scams, debtors can negotiate their own settlement terms especially if the account has already been charged off. It is recommended to follow certain steps to protect yourself against further collections.
Disclaimer
The content in this page is not a substitute for professional financial advice. Please contact a finance professional before using the information presented here.
References
Fast Facts
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Fact:
Federal Reserve reports state that consumer debt in the US is approximately $2.5 trillion dollars
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Fact:
36% of consumer debt is revolving credit such as credit cards
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Fact:
According to the Census Bureau in 2006 there were 173 million credit card holders in the US
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Fact:
In 2005, bankruptcy filings reached an all time high of almost 2 million
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Fact:
In 2007, 1 in every 35 households had filed for bankruptcy
