How Does Debt Consolidation Work?

This article is about the advantages of doing a debt consolidation program. You may not be aware of this but debt consolidation, CCCS, credit counseling and consumer credit counseling are basically the same thing. Doing a debt consolidation plan is different than doing a debt settlement program. In debt settlement you are reducing the amount of principal that you will pay back and in credit counseling you are negotiating the amount of interest you will pay back. In consumer credit counseling you will pay all of the principal back plus some interest. You will keep your credit cards current in the process. Doing a debt negotiation program will save you a lot of money in the principal that you will pay back but your credit score will be greatly affected until all the delinquent accounts are settled. You are also paying back less principal than what you originally borrowed. As you can imagine creditors they do not like that. But they also run the risk of not getting anything back.

What is CCCS?

The first benefit of doing a debt consolidation program is the elimination of late fees and over the limit fees. When you stop paying or default on a debt on any of your accounts, the financial charges and interest do not stop adding up. Once you start getting behind, the late fees and over limit fees can really start to get out of control. Not only will you keep racking up interest owed on the original debt, but you will also being racking up new interest owed on the late and over the limit fees as well. A debt consolidation program eliminates the portion of your total debt that is built up by accrued interest and other over the limit and charge off fees. This will reduce the total debt amount and make paying the debt back more manageable.

Debt Consolidation will lower your interest rates on your credit cards and give you one monthly payment

A credit counseling program will give you only one payment to worry about every month. I have spoken with people that have over 20 credit card accounts to manage each month. With that many to worry manage, one most likely would slip through the cracks at some point and give you a late payment. Your credit will go down as well. Once you start a history of late payments the credit card company can raise your interest rates. Some credit card contracts allow for raising your rates just because you where late on another card. With one payment to worry about, your chances of being late are minimized.

You can negotiate lower interest rates with your credit card company

The interest rates will also be lowered when you enroll in a credit counseling program. The credit card companies may not work with you in lowering your rates before enrolling in a program, but once you enroll in a credit counseling program they have to lower your interest rates. Sometimes they can negotiate your interest rates to 0%.

A good debt consolidation company can prepare a budget for you. They can help you develop healthy financial habits so you never have to sign up for a debt management program again.

How do I stop creditor harassment?

If you are getting creditor harassment you may want to consider enrolling in a consumer credit counseling program. Once you are in your calls from bill collectors should stop. If you keep getting calls, just let your company know who is managing your debt know about it. They should be able to take care of this quickly with a letter or phone call. By law they need to stop the calls at once.

Once you are in debt and are in over your head, there are not many great options to choose from. The best way to stay out of financial crisis is to decide if your purchases are wants or needs. Buying wants can give you a lifetime of misery. Do not spend more than you have coming in. I would rather have peace of mind than a bunch of junk in the garage.

This information is designed to be of general interest and should not be considered legal advice. The specific information discussed may not apply to you. Before acting on any matter contained herein, you should consult with your personal legal adviser or attorney.

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