If you need help in managing your debt, you should check out the debt consolidation program. For-profit or nonprofit credit counseling agencies set up effective plans and systems to eliminate your debt in a span of three to five years.
The program starts with counseling. You will talk to the service provider’s staff for them to determine if they can help you and for them to lay out the plan. Take this opportunity to learn more about your debt and ask about the organization and its fees. Try another company if you don’t feel good about them.
Some organizations may be nonprofits, but you still need to pay for the setup and monthly fees. Before you sign up with any of them, compare their charges with the others first. Those dollars matter, mainly because you are struggling financially.
Remember that this program is only for unsecured debt. This means that you can’t use it for those that are secured by collateral like home loans and auto loans. Typically, unsecured debts include student loans, personal loans, and credit cards.
You retain your accounts
Your existing loans will stay as they are. You will not move them or get a new loan. You will only pay monthly to your service provider, which will then distribute the funds to your various creditors. During the setup and while the program progresses, your service provider will be the one to talk with your creditor.
No new loan
Because you aim to eliminate debt, you have to ensure that you won’t add more to it. You have to close the majority of your credit cards, and while paying off your old loans, you should not take new loans.
Lower monthly payment
Ideally, your monthly payment will be lower. The majority of that money will go to the reduction of your debt. To help you pay off, you may also have a lower interest rate. Sometimes, penalty fees are reversed too. You might think this is too good to be true. However, this, of course, is a tradeoff. Remember, you also pay fees to your service provider.
Effect on credit
The debt consolidation program could cause some damage to your credit score. After your service provider negotiates with your creditors, you might end up paying less than the original amount. This would result in your credit scores to fall. If you had excellent credit before the program, you’d surely notice the hit. Otherwise, the effect could be modest.