Debt Consolidation 101

Consumer debt in the United States stands at about $2.6 trillion.  That’s an average of $8,500 owed by every man, woman and child in the country.  It’s no wonder that most people struggle to manage their debt while paying for everyday expenses.

As a result, more and more people are turning to debt consolidation companies to help them ease their financial burdens.  But what exactly is debt consolidation?  Is debt consolidation the same as a debt consolidation loan?  What are the debt relief options that are available?

What Happens When You Consolidate Debt?

One way to consolidate debt is to take out a debt consolidation loan to pay off your debt.  Because this is a secured loan, you will often get a better interest rate.  You will also only need to make one rather than many payments every month.  However, using a debt consolidation loan secured by your home equity is risky, and you stand the chance to lose everything.

A better option is to use a debt consolidation company that specializes in debt relief and management.  These companies can negotiate with your creditors to reduce interest rates and late fees, or even settle your accounts for less than you owe.

Debt Management Plan

A popular way to consolidate debt is with a debt management plan.  A debt consolidation company can negotiate with your creditors for lower interest rates and waived fees in exchange for a guaranteed monthly payment.  The company will roll all of your unsecured debt together into one monthly payment.  This payment is then distributed to your creditors until your debt is paid off.

Debt Settlement

Another way to consolidate debt is through debt settlement.  A debt consolidation company will create an account for you that you pay into each month.  Once your account reaches a certain level, the company negotiates with your creditors to settle your debts for roughly half of what you owe.  The money you have placed in the account is then distributed to your creditors until your debts are paid off.

Some advantages of debt settlement include:

• Avoid bankruptcy
• Single monthly payment
• No late or over-limit fees
• Avoid legal action by your creditors
• Protection from unfair collection practices

How To Find The Right Debt Consolidation Company

The first step in choosing a debt consolidation company is to understand which programs they offer.  For instance, many people assume that debt management, debt negotiation, and debt consolidation are all the same.  These are actually different debt relief programs tailored to different needs.

Next, make sure you fully understand the guarantees, restrictions, and terms of service for your debt consolidation company.  If you don’t follow your debt relief plan as it is spelled out, you can end up in a worse situation than when you started.

Finally, there’s no need to spend an arm and a leg for help in managing your debt.  A good debt consolidation company will understand your situation and provide their services for reasonable rates.