Usually, you combine all of your debts into a single lump sum owed to a single company and have that company pay off your old debts. They take care of the papers.
The catch is that you have to pay a fee to the debt consolidation broker in order to get this done. So, you are still in debt, and you are also paying a fee.
Also, debt consolidation agencies stand between you and your creditors. This adds another layer of bureaucracy and makes it more likely that something will go wrong.
Your credit report will also show that you are using a debt consolidation company. This will affect your credit score in the future.
Do you worry about money? Too much spending on the credit card? You bought a 4-Wheel-Drive on HP but can't pay it off?
Here's another tip: try to make a new deal.
If the only other option is for you to file for bankruptcy, your creditors would rather get something now than almost nothing later. The loan business is just like any other. You paid more for money than what it cost the lender to give it to you.
You can re-negotiate unsecured debts. These are debts for which you haven't put anything up as security. These things are:
- Medical bills;
- Bank cards;
- Personal loans;
- Student loans;
- Cheques that bounced;
- Gift cards for stores.
Secured debts are hard to renegotiate. These are debts that are backed up by a car or a house.
Even if you do have secured debts, who wants to go through the trouble of going to court to get your assets? Debt consolidation makes much less business sense than making a new deal to pay off the loan at a lower rate or with a lower monthly payment.
Can you sell the car for a good price and buy a cheaper one? Can you move to a smaller house and pay off your debts? Can you limit how much you spend each month?
All the little things you bought for yourself to make yourself happy that put you in debt add up. If you deal with what's making you unhappy, you'll need treats less. You'll be happier and have more money in the bank. A sunny day, a walk in the park, and the smell of a rose are all free, and they will make you feel better than a fancy stereo or a bunch of shoes.
Heck, if you renegotiate with your lender, you can keep your house. They don't want the trouble of having to kick you out. It comes down to which is easier and more profitable: kicking you out or getting money up front. You can avoid debt consolidation companies altogether.
It's okay to have debt as long as you make your payments on time and don't stop paying. Everyone will want to give you money.
When you do mess up, that's when the fun begins. Then, if you really need a loan in an emergency, you might not be able to get one.
Listen to what your grandmother told you: never lend or borrow money. Borrow money only to make more money, like for a business. Don't go into debt for nothing important. As soon as you can, pay off your debts.
If you don't want to talk to your creditors, don't call a debt consolidation company.
Then you'll be really free.
