How Debt Consolidation Programs Can Help You

If you have any type of debt at all, you have probably heard the term debt consolidation program many times. With the current situation in our economy, these are becoming very popular as people look for ways to reduce debt and free up cash assets.

These programs all have one thing in common. They take several smaller debts and combines, or consolidates, them into one single payment. A lot of the time, this is accomplished with a consolidation loan, but there are debt consolidation programs out there that do not entail loans.

There are several types of programs available such as debt settlement, debt negotiation or even a special type of bankruptcy called a chapter 13. For the most part, these programs are used to reduce unsecured debt, like credit card debt. Because unsecured debt is a high risk, it always carries a higher interest rate.

Debt settlement programs are very straightforward. A company takes your debts and adds them all together. Then they call your creditors and tell them that you are using their debt consolidation program (basically a lawyer that is on your side) and to stop calling the consumer with those irritating collection calls. The consolidation company may even be able to bring down the rate, lower the payments overall and wipe away late fees.

Debt negotiation works pretty much the same way, except that the debt consolidation company negotiates with your creditors on your behalf. In this way, they can exert leverage on the creditor and offer them a "take it or leave it" scenario. This puts a little of the power back into your hands through the company you have chosen to work with.

A chapter 7 bankruptcy is a version of the negotiation program. The main difference is that your debt is managed by a federal bankruptcy judge and your bills get paid off. The opposite of this is the chapter 13 or complete liquidation type of bankruptcy. But bankruptcy should be considered as your option of last resort, especially due to the long-term negative effects on your credit rating.

What type of program you decide on depends on your specific situation. The main advantage of debt consolidation programs is that you pay your debts and do not just walk away from them. Albeit slower than you would like, but you DO pay them off eventually. You also save money on late fees and CAN actually lower your overall debt.

Another really great thing about debt consolidation programs is that you don’t end up with your major assets collateralized. This is what happens with consolidation loans. If the debtor falls behind on the consolidated payments, they could lose their home, car or other major assets as a result, so there is that risk with the loans.

As with all financial decisions, you will need to shop around for a reputable company to represent you. Look around. Go to some consultations (these are usually free to the prospective client). Ask questions and get answers. You never know. Maybe you'll find a way out of your trouble without the help of a debt consolidation program.

But if you do need to enroll in one, be informed and know what you are getting into.