Debt Consolidation Assistance: What Is Debt Consolidation?

Debt consolidation is the transfer of many loans into one bulk loan. There are 3 different ways you can do a debt consolidation, but they all have the same effect, one payment instead of many.

Getting debt consolidation assistance is not a quick fix to debt. You are still in the same amount of debt, and often the debt length increases so you end up paying more for the debt in the long run. Most programs take 4-6 years for you to become completely debt free (other than a house mortgage).

There are 3 different ways to consolidate debt:

1. Use a Debt Consolidation Company
There are many debt consolidation assistance companies to choose from and we will cover that topic at a different time. However, most companies will offer basically the same debt consolidation assistance.

Initial Consultation
A debt consolidation company will first have a consultation with you to discuss your budget & debt. They will figure out how much money you have each month to put toward your debt.

Paperwork
Then they will send you paperwork. Included in the paperwork will be all the terms & conditions that the consolidation company will require of you. And they will also have you sign over a power of attorney. This gives them the authority to discuss your accounts with your creditors. Be sure that you read these papers very carefully so you know exactly what debt consolidation assistance they are promising to do. Along with this paperwork will be an explanation of their fee structure. The debt consolidation companies vary, some charge an up front fee, some include it in the monthly amount you are giving them, and some charge you on the “back end”. The back end is if they settle some payments to some of your creditors for lower than the original payment amount & the company keeps the difference. During this process they will want to set up a payment plan. Most consolidation companies will want you so set up an automatic withdrawal each month from your checking account. I do not recommend this for 3 reasons:
1. In order to make a permanent change in your financial life, you must make behavioral changes with regard to money. You must create a budget that you can live by and stick to it. If you give over all control to the debt consolidation assistance company, you are emotionally invested in just getting rid of the mess instead of fixing it permanently.
2. Writing that check every month is very emotional. It keeps you involved & is a constant reminder that you never want to be in this position again.
3. Just in case the company is not as good as you think at first, it is best not to give electronic access to your account to them. (And make sure you don’t EVER give electronic access to your creditors either, or they will wipe you clean.)

Creditor Calls
Third the debt consolidation assistance company will start to handle any creditor calls going to you. Keep in mind, this does not mean that your creditors are going to stop calling and/or harassing you. But it does mean that you when they do call, you don’t have to talk to them and you can calmly refer them over to your debt consultant at the consolidation company telling them that they have all authority to act in your behalf from now on. This will help some in alleviating harassing phone calls, but in all reality, remember it is you that owes them money, and they want to keep you emotionally involved until they are paid off.

Debt Negotiation
Next the debt consultant working for you will call each of your creditors to get as much information as they can to work up a full income statement for you. Then they will send that statement to each of your creditors and start negotiating terms of payment with each of them on your behalf. The consultant will be trying to negotiate settlements with late payments & other penalties you may have on your account (trying to get them lowered or wiped off completely), and they will try to negotiate the interest rates down.

Monthly Payments to the Debt Consolidation Assistance Company
Once all the negotiations are finished, you will send the debt consolidation company a payment each month.

Monthly Payments to Your Creditors
Shortly after the consolidation company receives the payment, they will forward your payments on to your creditors (keep in mind that this amount does not always reflect the full payment you make if the consolidation company is charging you a monthly fee). You will receive your regular statements from your creditors in the mail or online to be able to monitor that your payments are in fact being made.

2. Do a Debt Consolidation Yourself
You can do this by rolling all of your current debts onto one credit card, or line of credit. There are a few things to take into consideration before doing this.

No Debt Consolidation Assistance
You won’t have any assistance (except for what you get here) with your consolidation. But you should be able to gather enough information on your own to do a consolidation. Also, it puts you in control and that’s always a great place to be.

Total Your Current Debt
Total your current debt. Do you have a line of credit (credit card or otherwise) with enough available credit to roll all of our current debt into? If so then you can continue to pursue this option. If not, you will have to do something else.
Find Out the Transfer Fee
Call the chosen line of credit and find out what their transfer fee is. When you transfer credit to different lines there is always a fee charged, they can vary in amount, but a common charge is 3-5% of the transferring balance. Remember, that will increase your debt unless you have the cash to pay that immediately (which is what I would suggest – we’re not looking for more debt here). Decide if you can afford the transfer fee, if so move on to the next step.

Calculate Your New Monthly Payment
Calculate your new monthly payment. A debt calculator can be found here. Add up all your current monthly payments. Is the new monthly payment less that your existing payments? If so, it is worthwhile for you to proceed.

Make the Transfers
Next transfer over all other lines of credit into the chosen one, and make monthly payments. Remember to stay focused on your goal!

Make sure that you cut up all other credit cards & close all other lines of credit to ensure the permanence of being debt free. That will force you to get your debt paid off faster & keep better track of your money each month.

3. Get A New Personal or Asset Based Loan.
You can get debt consolidation assistance from a loan officer. Take out a personal loan through them and use it to pay off all your other lines of credit. This will usually lower your monthly payout because the term of a personal loan is usually longer than other forms of credit (resulting in a lower monthly installment payment). They will be happy to give you all the debt consolidation assistance you need.
You can also take out an asset loan. This is a loan you take out on an asset that you own. If you can take out an asset loan rather than personal loan, it is much better because the rate will be much better (because there is something to back the loan in case of default). Some assets that you can take a loan out on are real estate, vehicles, and boats.
Some things to consider when you consolidate into another loan are:

Your debt does not decrease by doing this. You monthly payment usually decreases, but only because the term (length of time you pay the loan off in) increases.
And in the end you will be paying more for your debt.

Just as an example:

If you have a $20,000 debt with a term of 5 years at 9% interest, your monthly payment would be $415.17. And at the end of the 5 years you will have paid $24910.20.

However, if you had the same $20,000 debt with a term of 20 years at a lower interest rate of 7%, your monthly payment would be $155.06. But at the end of the term you will have paid $37214.40.
That is a difference of $12,304.20 you pay extra over the life of the 20 year loan.

These are all things to take into consideration when you are looking for debt consolidation assistance. Choose wisely & be very thorough in your research. Keep posted for more updates & information. Also, please share your comments & experiences & feel free to ask any questions.

Finding Debt Consolidation Assistance

What is debt Consolidation?

The truth about debt consolidation is that it is a very serious step. It is a good option under desperate circumstances but you should get as much assistance as you can before doing it. Debt consolidation allows us to combine two or more different payments or make payments over longer periods of time in exchange for a lower monthly payment today. Sometimes this can help us to avoid bankruptcy or have some extra money at the end of each month. Pretty much any form of debt can be consolidated including credit cards, car loans, credit card, retail debt, and second mortgages and home loans. The most practical forms of debt consolidation are rolling unsecured lines of credit like credit cards into a secured lines of credit like on a house or a car loan. Be aware that even if your interest rate goes down, you could still be paying more interest over the life of the loan and that the loans will generally take you longer to pay off.

Will it solve my problems?
No, debt consolidation assistance can only solve a short-term problem. You will have to dig a little deeper to find out what actually caused the problem. Every problem has a reason and each is a little different. Knowing what caused the debt problem will help you prevent it from happening again.

How do I choose a good debt consolidation company?
Choose a company that has been in business longer than 10 years. Also see if your friends or family know of anyone they can recommend.

What to avoid when looking for good debt consolidation assistance company?
If it sounds to good to be true it usually is. Consolidation companies that promise a lot typically deliver very little. Avoid companies that promise to settle your credit cards for a fraction of what you owe especially if you have good credit. Sometimes these companies will ‘take over payments’ by not making payments for six months and then getting the credit card companies to settle for less. Then they make their money off their fee plus the difference between the actual settlement price and the settlement price they tell you. Not only is this dishonest but,it ruins your credit for a very long time. You can also be responsible for the taxes on the unpaid amount and you may be sued for it later.