Many consumers have found themselves up against significant amounts of debt spread across a handful of creditors over the last few years. They may have heard about debt consolidation programs that promise to consolidate debt and reduce monthly payments, while wondering how they work and whether they can deliver positive results. The good news is that many programs of this kind do deliver meaningful benefits, and what they accomplish is actually fairly simple.
Debt consolidation programs give qualified consumers a new loan that pays off several or all of their outstanding obligations. This new debt consolidation loan, by aggregating all of the individual debts and paying them off, often becomes the only loan that the consumer holds and makes payments to.
A loan from a debt consolidation program is typically more convenient for borrowers for several reasons. These loans come with interest rates considerably lower than those loans they are paying off, which are often high interest rate credit card companies or other lenders who may have financed their car or education. In addition, the minimum monthly payment on a credit consolidation loan tends to be significantly lower than the combined payments of the several loans the consumer was paying towards separately. Plus, having only one single payment to make reduces the headaches that can arise when a consumer has to keep track of multiple bills and their associated payments.
Because debt consolidation programs offer relatively low annual percentage rates on the loans they give out, the savings to consumers are substantial and immediate. Many credit card companies have extremely high interest rates, especially for consumers who have fallen behind on their monthly payments. The same is true of rates for other types of borrowing like auto or personal loans, particularly if the consumer has had past credit issues and is not a prime borrower. By taking out a debt consolidation loan, consumers can potentially save thousands of dollars over the life of the loan, particularly if they are prudent about setting aside extra money each month to pay down the principal balance more quickly than scheduled.
Some debt consolidation programs offer better rates than others, and timing the market to get the best deal can be challenging. Some programs may even allow loans to be secured against property, which make the loan safer for the lender, who will in turn pass on an even lower interest rate to the consumer.
There are many benefits that consumers can find from debt consolidation programs, including fewer accounts, lower payments and more convenience. These programs are legitimate, and they do work for consumer that can qualify and do their due diligence on the various offers available to them.