How Debt Consolidation Works
Debt consolidation is something that many consumers are leery about. Many believe these companies to be scams that don't help their credit situation whatsoever. This is not the case though; working with a trusted, licensed company is your best bet. If it is a company that you have never heard of before, steer clear that is the best advice to give regarding that.
Select a Company
There are several debt consolidation companies to choose from. Do a bit of research and check with the Better Business Bureau regarding reports on their account both positive and negative. Ask about the validity of the business as well. You want to be sure that you are selecting a trusted company to work with.
Submit All Credit Accounts
On the first appointment with the debt consolidation company you should take copies of all of your debts with creditors. This helps the counselor to properly analyze your personal situation. This also helps them to view what types of payment arrangements, based upon your necessary bills and income, will work in your favor.
The counselor is there to help you, and take as little from your income each month to pay down debt. Even if the amount owed is very small, getting the interest reduced or taken off completely will help you quite a bit.
The Consolidation Company Negotiates
You don't have to worry about negotiating a payoff with creditors. The debt consolidation does that for you. The counselors are trained in debt negotiations. This means that they are going to get the very lowest amount possible for repayment. This may be something like a settlement or a reduction or removal of interest on the amount owed.
Regardless, it is far less than you show to owe on your last received statement. It makes the debt look far more manageable than before and lifts a lot of stress off of your family and finances.
Make One Payment
Since the debt consolidation company is negotiating for you, the payments on the debt are made to them. It is one payment per month, based upon your budget and a breakdown of the total debt owed after negotiations. It is convenient to make one single payment per month to one company rather than sending out payments to multiple companies with little movement in the amount owed due to interest continuing to be added on.
Improve your Credit Rating
Debt consolidation companies report to credit bureaus. In return, creditors will report the payment plan and will report when your payment is received. This improves your credit rating as soon as payments are received and reported. Most creditors will report the payment within a couple of weeks of receiving it. Some only report once per month.
It is best to wait to apply for new credit until you have completely paid off of your debt and have built up an emergency fund that will support your household for three to six months. Debt consolidation companies are there to help and you should not be afraid to work with one. Their fee is often worked into your monthly payment. They will not ask for more payment than your budget allows for. If you owe creditors tens of thousands of dollars, expect to pay several hundred per month in repayment.