Do you have more debts than you can handle? Are you having a hard time managing multiple bills? Would you feel much better if you had to make only one payment to creditors every month? If your answer is “yes” to all the questions, then you can enroll in a debt consolidation program. But before you enroll in the program, let’s find out how to consolidate debt and who offers the best debt consolidation programs.
What is a debt consolidation program?
A debt consolidation program combines unsecured debts like payday loans, medical bills, and credit cards into a single monthly payment plan at a low-interest rate and an easy debt relief plan. In most cases, debt consolidation services are offered by debt consolidation companies. You make a single monthly payment to a debt consolidation company and they distribute it among your creditors. The process continues till you pay back all your creditors.
Read: Can debt consolidation be useful to you?
How to consolidate debt in 7 simple steps
In a debt consolidation program, you can consolidate debt in 7 simple steps, and those are:
- 1. Pen down the number of debts you have along with the interest rates.
- 2. Calculate how much you can pay on your debts after evaluating your budget.
- 3. Sign up with a debt consolidation company.
- 4. Complete all formalities and enroll in the debt consolidation program.
- 5. Explain how much you can pay every month to the debt counselors.
- 6. Wait patiently and let debt counselors negotiate with your creditors.
- 7. When debt counselors and creditors reach an agreement, start making monthly payments (which includes the debt consolidation fee) until you pay your bills completely.
What are the various types of debt consolidation programs?
In this country, you can enjoy 3 types of debt consolidation programs and these are:
- Credit card debt consolidation programs where you consolidate your credit card bills into a single monthly payment plan.
- Payday loan debt consolidation programs where you consolidate cash advances into an affordable repayment plan.
- Medical debt consolidation programs where you merge unpaid hospital bills into a lower monthly payment plan.
Debt consolidation programs – Pros and cons
| Pros of debt consolidation programs | Cons of debt consolidation programs |
|---|---|
| You have to make one payment to one source every month | You can spend more if the tenure of the program is too long or the fee is high |
| You only have to manage one bill | You can get scammed if the debt consolidation company is fraudulent |
| You can save money on interest rates, late fees, and penalties | |
| You can simplify your finances | |
| You can eliminate debt fast |
Who offers the best debt consolidation programs near me?
- Debt consolidation companies having proper accreditation and affiliation.
- Debt consolidation companies have an affordable fee structure.
- Debt consolidation companies that know the state and federal laws properly.
- Debt consolidation companies have good track records and success rates.
See also: Multiple debts? 9 Ways to choose a great debt consolidation company
Debt consolidation program vs loan – Which one is a better option?
Debt consolidation programs roll high-interest unsecured debts into an affordable single monthly payment plan. When you sign up for a debt consolidation program, the debt counselors negotiate with your creditors for a payment plan with a low-interest rate. They talk about the financial problems you’re in and request them to cut down the interest rate on your bills.
Debt consolidation loans work in a completely different manner. With a debt consolidation loan, you replace your existing debts with a new loan at a low-interest rate. This means you pay off your existing debts with a new loan to save money. The new loan has fresh terms and conditions. So you may get more time to pay off the debt.
Now, the main question is, which one is a better option? A debt consolidation program or a loan?
According to many people, a debt consolidation program is better than a debt consolidation loan due to the following reasons:
- It’s easy to qualify for a debt consolidation program. All you need to do is submit a few documents and pay the debt consolidation fee. However, in the case of a debt consolidation loan, you need a good credit score and assets to be eligible for it.
- When you look into debt consolidation for bad credit, a program is a good option for you. There is no credit check in case of a debt consolidation program. However, in the case of a debt consolidation loan, lenders check your credit report and score. They determine the interest rate on the basis of your credit score. If you have poor credit, be prepared to pay a high-interest rate on the debt consolidation loan.
- You may lose your assets in case of a secured debt consolidation loan where you have to pledge collateral against it. If you fail to pay off the new loan, then lenders can seize your assets. You can’t do anything.
Is there any alternative to a debt consolidation program?
The decision to eradicate debt is much like the decision to shed those extra pounds from your body. The sooner you get started, the better for you.
Debt consolidation helps you to merge multiple debts into a repayment plan at your convenience. However, if you have secured debts, then a debt consolidation program is not what you need. It won’t make your financial life easier. In this case, you might need to look at refinancing or bankruptcy as your way out.
If you want to cut the debt amount into half or more than that, then a debt settlement is a good option for you. In this program, the debt negotiators bargain with your creditors for a lower payoff amount owing to your financial hardship. They try their best to settle your debt with a lump sum payment to creditors. The only negative side of the debt settlement is that it drops your credit score since you’re not paying the full amount. You won’t face this problem in debt consolidation programs because you’re paying the full amount.
Here is the best debt settlement advice to consider prior to enrolling in the program.