The way debt consolidation works involves an individual combining his or her smaller loans into a bigger loans in order to get a lesser interest rate. However, it is also possible for such a person to use existing assets, for instance a home, to get even better leverage with creditors. This means debt consolidation can also involve getting a secured loan against a certain asset that will act as collateral. Below is a look at the benefits of debt consolidation.
The biggest benefit of debt consolidation is a reduction in an individuals monthly debt payments. A person can observe a reduction of even 50% but it will depend on the amount of debt and the individuals financial situation. Once a person applies for a debt consolidation program and qualifies for it, all his or her unsecured debts will be combined into a single smaller monthly payment having a lesser interest rate.
Another benefit of debt consolidation is that the applicant will only have to worry about making a single monthly payment. He or she will make payment to the assigned credit counselor, and this counselor will then distribute the money accordingly. Being in debt can be rather stressful, and can be made worse if the person in debt tries to juggle several monthly payments to several creditors. A credit counselor will work with the creditors on behalf of the applicant so he or she will no longer be harassed by debt collectors.
Debt consolidation is not meant to buy someone time to pay off his or her debts. It is meant to help someone get out of debt as fast as possible. As soon as a credit counselor has negotiated with a clients creditors, the client will be given a certain amount that should be paid to the counselor on time each month. This payment will most likely be less than he or she is used to paying. However, this does not mean he or she is getting more time to pay off debts.