Debt consolidation offers you the option of combining your debts so you only have to pay them though a single monthly billing. Having too many bills to pay can be overwhelming for some people, and additional fees for late payments and incorrect amounts add to the stress. Choosing the right type of debt consolidation for you not only helps avoid costly confusions but can also result in lower interest rates and/or monthly payments.
However, it is important to clearly understand a debt consolidation company’s fees and interest charges and to make sure that you have it in writing. With the right monthly payment plan, it can help get you out of debt faster.
Most financial experts prefer Debt Management Plans (DMP) for debt consolidation. DMPs may be acquired through a reputable credit counseling organization. Many of these organizations are nonprofit and may offer counseling sessions with little to no additional charge. Reputable, however, is a key word here. Investigate the organization to avoid frauds and scams and look carefully for hidden fees. DMPs begin with a credit counseling session that will help determine the amount that you can afford to pay your creditors each month. They can also assist in talking to creditors so you can get lower interest rates; they may also ask them to waive or reduce late fees to make your monthly payments lighter.
Once everything has been agreed upon, you would have to send a single monthly payment to the agency running your DMP. This single amount will then be split so it can be distributed among all your creditors. A Debt Management Plan can affect your credit score, but once you become debt-free, your credit score will improve significantly.
If DMPs are not available to you or if you are not comfortable with someone else handling your multiple loans, a Debt Consolidation Loan (DCL) is another option for paying off your debts through a single billing. It is also a better option if you are concerned about your credit score. A DCL is a method of consolidating several loans and transferring them into one new loan. It is most commonly used to combine multiple credit card debts. Basically, what happens is a new loan is made to pay off the credit cards in full and the new loan takes their place in your monthly payments. A Debt Consolidation Loan can reduce the amount of annoying calls you get from your creditors, allow you to pay only a single monthly billing because you’d only have one creditor, and give you the opportunity to improve your credit score with timely payments.
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