There is a relatively new program for dealing with debt that is becoming extremely popular. It is called debt consolidation and its typically associated with non-profit consumer credit counseling services. Although it may sound like a debt consolidation loan, debt consolidation is entirely different.

Unlike a debt consolidation loan, your debt is consolidated and your interest rate reduced without the need for a loan. This is done through negotiating with your creditors rather than taking on additional debt.

Often debt consolidation services are a "win win" situation for the consumer. The consumer gets their interest charges reduced, their monthly payments minimized and have the convenience of paying all their debts in one monthly payment. Also, by making the regular monthly payments, the consumer will be back on the road to restoring their credit rating. Perhaps best of all this program is largely or entirely paid for by creditors.

It is no wonder that debt consolidation services have become the number one recommended way of dealing with excessive debt.


How Does a Debt Consolidation Program Work?

The way this program works is that a debt consolidation professional will contact your creditors to get your interest rate and monthly payments reduced to an amount that you can afford to pay. Many debt consolidators already have working relationship with these creditors and will know exactly how to get the best deal for you. For example, if you have a $5,000 debt with MBNA at 21% interest, a debt consolidator will likely be able to get MBNA to lower your interest rate and monthly payments significantly.

Typically, a good debt consolidation company can lower your monthly payments by 50%. In some cases, they can even eliminate interest charges altogether. This way your entire monthly payment will be toward the principal.

In addition, you no longer pay your creditors directly. All of your debts are organized into one manageable and reduced payment to the debt consolidation company. The debt consolidation company in turn pays your creditors on your behalf.

What Are Some Examples of the Money I Will Save By Using A Debt Consolidation Service?

A good debt consolidation company can lower your monthly payments and interest rate by 50% for each of yourunsecured creditors. In some cases,
they can even eliminate interest charges altogether. This way your entire monthly payment will be toward the principal. The savings over the repayment period are dramatic. Below is an example of the typical amount you might save in interest charges if you used a debt consolidation service and you owed a credit card company $3,500:

Total Payment Not Using Service
$7,069.98

Total Payment Using Service
$3,184.98

Amount Saved:
$3,885.00

How is Debt Consolidation Different Than a Debt Consolidation Loan?

You have seen debt consolidation loans advertised and they may look like a good idea. The way these loans work is that you are given a bank loan against your property and you use this money to pay off high interest credit cards. Typically, you are required to use the equity in your house as collateral. The problem is that most people who are in deep debt do not have equity in their homes and the ones that do are concerned (rightfully so) about taking on more debt.

In order to reduce your debt, you need less credit not more. Increasing debt by mortgaging your house is typically financial suicide. Many people report that Re-Financing with a consolidation loan or a second mortgage pushed them over the financial brink. Under these circumstances, the loan or mortgage you do obtain (if you qualify) will be at a very high interest, and though you will appear to be making progress, you will only be digging yourself in deeper in debt.

A common myth is that debt consolidation loans are tax deductible. This is only partially true. Interest paid on mortgages that exceed the value of the house, used to repay credit cards or personal loans (called unsecured consumer debt) is not tax deductible.

Why is Getting A Loan To Pay Off Your Debt Possible Financial Suicide?

Lets say by pledging your house as collateral, the banks gives you a loan and you pay off all your high interest credit cards and loans. So far so good -- now you only have the loan to pay off. BUT -- your credit cards now have no balance and inevitably, you buy a few things here and there, and before you know it -- your credit cards are back at the limit. Now you have the 'consolidation loan' and the credit cards. Everybody says, "No that won't happen to me" or "I'll never do that" but people do this every day and end up worse off that when they started.

In a study of the efficacy of debt consolidation loans, the FDIC concluded that "…some consumers will increase credit card and other consumer debt after a debt consolidation package is completed, thereby weakening their ability to repay outstanding debts and increasing the likelihood of bankruptcy."

How Much Does This Service Cost?

Amazingly, your creditors subsidize all or a large part of most debt consolidation services. Before you say this sounds too good to be true, keep in mind that your creditors are not lowering your interest rate and making it easier for you to make smaller payments out of the goodness of their heart. They realize that if they don't help you out a little, you may file bankruptcy and they will likely collect nothing. 

Through debt consolidation services they can at least recoup the principal on your debt. In addition, you will notice that most debt consolidation companies are organized as "non-profit" companies. This allows the credit companies to recoup a significant portion of the "lost interest charges" through tax write-offs.

So take advantage of this great service. It seems to be one of the few true win win situations out there for the consumer.

Contact us for a completely free consultation and a professional will teach you how you can begin saving on your interest charges within a couple of days.

Why Would My Creditors Lower My Interest Rate and Monthly Payments For Me?

Before you say this sounds too good to be true, keep in mind that your creditors are not lowering your interest rate and making it easier for you to make smaller payments out of the goodness of their heart. They realize that if they don't help you out a little, you may file bankruptcy and they will likely collect nothing. Through debt consolidation services they can at least recoup the principal on the debt.

In addition, you will notice that most debt consolidation companies are organized as "non-profit" companies. This allows the credit companies to recoup a significant portion of the "lost interest charges" through tax write-offs.

So take advantage of this great service. It seems to be one of the few true win win situations out there for the consumer.

Why can't I just declare Bankruptcy?

You may feel your debt is overwhelming and bankruptcy is the only way out. Or, you may feel it is the easiest way to start over. Bankruptcy may be your best option, but it is something to consider carefully. A recent study by the University of Michigan found that erasing debt in bankruptcy is vastly under used by consumers in debt. To learn more about consumer bankruptcy we recommend this excellent site. Click Here.

Before filing you must make sure for one that the kinds of debts that you owe are dischargeable (i.e. eliminated or erased by the bankruptcy). For example, if you used the equity in your house as collateral for a loan, the loan may not be eliminated in bankruptcy.

Credit card debt is typically erased after a successful bankruptcy. Another concern of course is your credit rating, however if your credit is already quite bad, filing bankruptcy may actually improve your credit rating. This is because after filing you will have less debt and can't file again for 6-7 years, both of which make you a better credit risk. For more free personal bankruptcy information click here.

How Do You Choose A Debt Consolidation Service

You want creditors off your back. You want to relax and feel your finances are being professionally managed and your credit is being restored.

Our debt consolidation pros will make sure you are matched with a debt consolidation professional that is highly experienced dealing with creditors and lenders and will get the best possible repayment plan for you. Your professional will ensure that creditors no longer call or attempt to harass you. You don't have to deal with creditors.