Most people are in major debt due to mortgages, student loans, credit cards, and vehicle payments. The average person lives paycheck to paycheck and has no savings account. When bills are higher than income, keeping up with payments becomes difficult. That results in missed or late payments which add late fees to debt. Late fees are reported to the credit bureau and have a direct impact on credit scores. Minimum credit card payments are typically slightly higher than the interest rate each month, making it virtually impossible to pay down the debt. The cycle repeats itself every month and people get deeper and deeper in debt. At that point, creditors begin to call, send letters, and threaten to place the account in collections.
Debt consolidation can provide a solution that will stop the cycle of debt, reduce monthly payments, and relieve the stress of constant phone calls. There are three consolidation methods from which to choose. The first is to work with a debt consolidation company. Company professionals will negotiate with creditors to remove late payments and lower the monthly payment required. A debt management plan will be developed based on the monthly income and expenses of the consumer. Bills are consolidated so consumers only have one monthly payment which goes to the company. The company disperses that payment among creditors. Select the company carefully to avoid scams. Consumer credit agencies and creditors can recommend a few reputable companies so ask them and then research the company before conducting business.
The other two methods consist of loans. A debt consolidation loan is offered by banks, credit unions, and private lenders. The loan is provided to pay off debts and the consumer will only have the one monthly loan payment instead of several smaller payments to individual creditors. Depending on the amount of money borrowed, the credit score of the applicant, and the total monthly income some loans may require collateral or a co-signer. It is important to keep in mind that the collateral will be taken if the loan goes into default. A bank or credit union will have lower interest rates than a private lender, but a private lender will approve applicants that the bank will not approve. It is wise to find out more about consolidation to stay out of bankruptcy and stop the cycle of increasing debt.