Debt Consolidation
Debt consolidation is combining several debts together and replacing all these debts with a new single debt usually with a lower interest rate and smaller but longer repayment.
Most credit counseling organizations such as the one described in the previous section also provide debt consolidation service but with a fee. Check the credibility of the organization first before you sign up with them. Refer to the Council on Accreditation of Services for Families and Children, the National foundation for Credit Counseling, Better Business Bureau and so on.
Not all organizations that provide debt consolidation will put your interests first. Credit card companies have been known to pay commission to debt counseling organizations that help people find a way to pay back their debts. This is because when the cardholder files for insolvency or bankruptcy, the credit card companies get no payment at all.
There are some greedy people who provide credit counseling solely to earn the commission. Worse still these counselors often push you to pay the credit card debt first before paying the other debts which sometimes may not be at your best interest.
The organization will negotiate direct with your lenders to come to an agreement on how you should go about repaying the debt. Your lenders or debt collectors will stop harassing you with phone calls or letters
There are things you need to pay close attention to before you sign the Terms of Agreement with the organization.
- You are expected to be charged a nominal fee for debt consolidation service. This fee is a small price to pay because you will save even more with your lower interest rates. Shop around to see if the fee charged is reasonable.
- You will be expected to make your monthly payment on time and you will also have to agree that you will not go into anymore debt. Therefore, you are expected to change your lifestyle but this is a small price to pay for the peace of mind that you will get because the harassing phone calls and letters from your lenders will stop coming.
You can also choose to consolidate your debt by yourself if you do not wish to use the services of an agency.