Consolidating Debt - What You Should Know About Consolidating Debt

The number of families that are suffering under a debt load that they can no longer manage is continuing to grow at astronomical rates as the world economy continues to linger in a recession. More families are looking for ways to consolidate the debt that they have accrued over the last few years when times were much better.
 
Before you can think too seriously about consolidating the debts you have managed to run up there are some things you need to know and some decisions you need to make. You need to take a close look at the amount of debt you actually have and when it is due to be paid off.

You also need to know what the status of each of your accounts is, if any of them already have a judgment or are involved in any kind of legal action you may not be able to consolidate your debt. If you are mainly dealing with past due accounts and collection companies however you may be an ideal candidate for consolidation.

For most people consolidating the debt they have amassed, means taking out one big loan to pay off all of the little ones. The first thing you need to do is sit down with a list of all of your debts and how much you owe, you need to know what each monthly payment is and what the interest rate on each credit card or debt is.

You can go online where you will find several websites that offer you a way to use a debt calculator to consolidate all of your bills into one payment. You can then compare this information with that supplied by the company who is offering you a loan to help you with consolidating the debts you have.

If you make the decision to consolidate your debt you need to take a close look at the company that is offering you the loan. In most cases they are buying your debt for less than you owe, which is where they make their money. So make sure you pay close attention to the amount of interest they are going to charge you, it should be significantly less than the interest you were paying on your loans and credit cards, if it is not you might want to consider contacting each creditor and seeing if they will work with you instead. The whole point of taking out a loan for consolidating debts is to reduce them, to make them worse.

Alternatives to Loans

There are alternatives to actually taking out a loan when you are trying to get your bills under control, one that not many people have heard of and that does not involve taking out a loan. Depending on where you live and the laws that apply there are agencies that will help you to arrange a single payment each month that is then split among the companies you owe money to. These credit counseling agencies will sit down with you and discuss consolidating the debt that you have amassed and then work with the companies you owe money to.

Their goal is to establish how much you can honestly afford to pay in one monthly payment after you have figured in your mortgage or rent and your regular monthly bills such as food and utilities etc. Then they contact your creditors and make arrangements to pay off your debts. At this point your interest is often dropped or reduced to almost nothing and you are paying on the principle of the balance you owe.

Once the arrangements are made you will have to sign an Individual Voluntary Agreement or IVA and be responsible for making a single monthly payment to the agency who will then disburse it to the credit companies you owe money to. This will allow you to consolidate your debt and pay off your loans within 5 to 6 years at which point you will be free of the debt and in most cases your credit will be restored.