With debt consolidation you consolidate all your debts with one lender. You take loan from this lender and pay off all other lenders. Now you pay this new lender a regular installment and clear off your debts. Debt consolidation thus helps you to manage your debts in much better way.
It makes the repayment much easier and also lowers your total interest rate. You don't have to run to different lenders to pay them the installments before the deadlines. Debt consolidation makes the whole thing easier and manageable. Well, this is true for the individuals who are unable to refinance their debts and are finding it pretty hard to make the ends meet.
Debt consolidation solves most of the debt problems when there is no other way out of the trap. A well planned and selected debt consolidation gives you all the benefits, but, other way round, it can be devastating. So, choose the consolidation plan that best suits your needs and repayment capabilities.
Approach the licensed agency which has good experience and reputation in this field. Search these agencies only if you cannot refinance your debts any further. Refinancing is a much better option than reaching your lender and negotiating with him the interest on the loan you pay.
If you apply for the secured debt consolidation loan, you place your property with the lender as collateral. This lowers the interest you pay. It also gives you the option to take longer repayment term. This makes your repayment sum lower but you risk your property for this loan. If you fail to repay your loan amount, your lender will sell your property to recover back the loan amount.
So, you have to be careful when you consider and choose the debt consolidation plan. Always approach the agency that has the license for this service. Also verify that the agency is currently licensed in your state or region. Avoid the companies which charge the high upfront fees and administrative fees. There are many unauthorized agencies operating in the market who ask you to pay a high sum as upfront fees. Avoid them.
You may think that a single loan looks much better than the multiple loans on your credit report. But the fact is when you consolidate all your loans, you close all your credit card accounts. By closing all your accounts you shorten your credit history which adversely affects your credit score.
Therefore, pay attention to your spending and start with self evaluation of your debt situation before you approach a debt management agency for debt consolidation program.
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