Debit Consolidation - 8 Frequently Asked Questions

8 Frequently Asked Questions

1. What is debit consolidation?

A. Debit consolidation allows someone who has several debts such as credit cards, student loans, car payments, etc. to make one payment each month instead of several to each individual lender.

2. How does it work?

A. Different types of debit consolidation loans work in different ways. With a home equity loan, a homeowner can borrow enough money to pay off their other debts against the value of their home. Then they only pay one set amount each month on the new loan. An unsecured loan is similar but doesn’t require a home as collateral and usually has a higher interest rate or greater fees. Some debit consolidation companies provide programs where they collect the money and divide it among the debts each month rather than having the debts paid off at the beginning.

3. Why consolidate?

A. For some people, the amount of their debt is not significant but having so many different monthly payments with different due dates is hard to keep track of and they find themselves missing payments or incurring late fees. Getting a loan to pay all of it off and then just making one payment each month is much simpler. Others have so much debt that they are struggling to make more than the monthly payments and often are not paying down the principal they owe. Consolidating with a lower interest rate means they can pay the same amount or less and actually decrease the amount of remaining debt each month rather than just paying the interest on it. Debit consolidation can mean paying less money and also having less stress and worry.  Get free debt consolidation quotes to help you out.

4. Will my monthly payments be less?

A. This depends on the loan or program you choose. For some, combining all their debt with one set interest rate means lower monthly payments. Others choose to pay the same amount but pay off their debt much quicker. Over the duration of the loan, the faster the debt is paid, the less you pay total since there is not as much interest accrued. Lower monthly payments usually means more months of payments.

5. Will my debt be less?

A. As mentioned above, you can pay less with lower interest rates and shorter re-payment periods, but generally the amount of your debt does not change. Some debit consolidation companies will do debt negotiation for you as well as negotiate a change in the interest rate. Usually they are only able to do this if you are already behind in your payments and they convince the lender to take one large lump sum that is less than the total amount due.

6. Should I do it on my own and work with a company?

A. That depends on what you want to do. If you just want to use the equity in your home to get a loan to pay off all your debt and then just have one loan payment, it is fairly easy to do it on your own through a bank. However, if you are behind in payments and struggling under a lot of debts, you may want to look into a debit consolidation program that will work the companies you owe money to so you aren’t dealing with so many different ones. They can also provide credit-counseling that can help you avoid overwhelming debt in the future.

7. How do I find reputable debit consolidation companies?

A. The best way is to hear by word-of-mouth or get referrals. This may be awkward or not possible if you don’t know anyone who has consolidated their debt. There are several on-line resources and checking the Better Business Bureau to see how many unresolved complaints a company has had is always a good idea. Also check christian debt relief companies or local non-profits. There are many free debit consolidation programs offered by non-profit and government sources that provide the same type of help as for-profit companies without the additional fees or pressures to choose programs that give them additional money or commissions.

8. What do I do after I consolidate?

A. Make your new monthly payment on-time to avoid additional fees or problems. If out-of-control debt was your problem in the first place, rein in your spending by making a budget and sticking to it. If you just had too many debts to manage, consider using less credit cards or set-up automatic on-line payments to help you avoid late-fees and other hassles.