Some consumers use a debt consolidation services to repay existing debts, a move that allows them to regain control of their finances. They typically pay a lower interest rate than rates for existing debts. Many people are able to lower their monthly payments by taking out a long-term loan, while others allow a debt consolidation firm to handle debt administration.
Dealing with only one party, being able to make a single payment for debt each month, and knowing when debt will be repaid makes debt consolidation attractive to many people.
Finding a loan with the best terms requires some research. The lower the interest rate, the less expensive the loan. Debt consolidation is designed to prevent people from falling behind on debt payments so it should be affordable. By using a debt consolidation loan, many consumers are able to prevent their credit rating from worsening. Their credit scores may even improve due to on-time loan payments.
Alternatively, a debt consolidation firm may offer to consolidate debts under a debt management plan. A representative will negotiate reduced debt payments with creditors. These repayments are combined into a single monthly payment that the debtor makes to the consolidation firm. This payment is then divided amongst the creditors, with some consolidation firms keeping a portion as compensation for their services.
Be Diligent & Check Your Payments
In both situations, the debtor is not making payments directly to creditors. Debtors may want to ensure that their money is reaching creditors and being applied to debt balances. Checking monthly statements from creditors is one way to do this. When a debt consolidation service is used, the account balance should decline by the agreed upon amount each month. If a debt consolidation loan is used to repay debts, all accounts should reflect a zero pound balance after the loan is applied.
Some debt consolidation services allow consumers to track creditor payments through their websites. After logging into a customer section of the site, debtors can view their monthly payments and how the funds are divided between creditors. Other services may mail a monthly statement reflecting this information.
Before issuing payments to creditors, firms typically hold the money in a client trust account. Creditors are typically paid within two working days of the consolidation service receiving payment from the debtor.
A debtor may be able to make online payments to the consolidation firm through a secured area of its website. This eliminates the need to write a check and incur postage each month. Debtors can use their online customer account to track their monthly payments. At any time, they can see how much they have paid, how much each creditor has received, and how much is still owed.
Keeping tabs on debt payments is a good idea because it keeps debtors in control of their financial situation. They will be aware of the approximate time to repay debts in full. This gives them a goal to strive for and if their financial situation improves, they can discuss increasing their debt payments in order to repay debts more quickly.