When you are drowning in debt, and finding it difficult to make payments as well as keep a track of your finances, a debt consolidation program seems like a viable way-out. But, before you consider signing up, learn how such arrangements work, and also evaluate if you really need one.
Understanding Debt Consolidation Program
The best debt consolidation program could be defined as a service that combines several loans into one payment. In almost all the cases, a program is several strategies suggested by a credit counseling agency. You make that one payment to the agency, and the agency forward rest of your payments to the creditors.
Now a debt consolidation loan, unlike the program, is a new loan that you take to pay off your obligations. Apparently, you get a loan with excellent terms, and that makes the ‘paying off’ easier.
Programs and loans have more or less same outcomes even though they operate quite differently:
- In case of program, you make one payment. In case of loan, you make multiple payments.
- In case of program, your monthly income must be lower than before.
- In case of program, you get a low interest rate.
The chief difference between debt consolidation program and debt consolidation loan is that the loan shifts the debts to a brand-new loan. The program, on the other hand, is a sort of service to pay the debts off right where they are. It is also known as debt management plan.
If you have enough income and good credit score, debt consolidation loan seems like the right choice for you. Compare the fees you will pay for the program and loan before arriving at a decision.
How Debt Consolidation Program Works?
The workings of the best debt consolidation program can be divided into the below-mentioned steps.
- Start with the counseling. You speak with service provider to determine whether the program will be able to help you or not. Thanks to counseling, you can learn about the debts you have accumulated, enquire about the fees, and the approach of the organization.
- Although many organizations are nonprofits, you have to give a setup fee and a couple monthly fees. Before picking one organization, pay close attention to the money they ask for. When you are financially struggling, every penny matters.
- A debt consolidation program is only for unsecured debt. For instance, auto and home loans would not qualify. Unsecured debt includes personal loans, a few student loans, and credit card debt.
- The aim is to remove the debt, so, you cannot take on more debt as long you are part of the deal. You have to close all of your credit cards and make sure you do not take any new loan while getting rid of your older loans.
When it comes to managing outstanding debt, there is a wide range of organizations that wish to help. How to know which one will suit your situation the best? Read reviews, ask around, and research the available service providers. Go for someone with a credible reputation in the market.
Now remember that you may not even have to opt for a debt consolidation program. You can implement many of the strategies on your own. Instead of paying fees, you will be spending your time and energy. But it is possible that at the moment you have more time and energy than money.
That being said, if your capacity to pay off debt is complex, you must seek professional assistance. Pursuing debt consolidation is the last resort since it involves stopping the payments and working with some firm that holds the sum in escrow and reach a settlement through negotiation.