Is Debt Consolidation The Solution To Your Debt Problems?

agorton
February 6, 2013

Debt consolidation is widely advertised in the U.S. as the end all to debt problems. Debt consolidation, in layman’s terms, is taking out a big loan to pay off all of your incumbent debt. While this may in fact lower your payment month to month while only having to worry about making the one payment, does not instantly rid of debt. You still have to pay off the loan taken out in the process.

Is debt consolidation right for you?

In the tough financial world today, especially in the U.S., people will find anything they can to try to ease the strain placed on them from money troubles. Many debts can be incurred in a person’s life from student loans, to mortgages, even car loans. Many find that it may be easier to get rid of all their debt save one payment per month. No one can decide for you whether debt consolidation is the answer but if you are in doubt then seek professional advice. Financial experts are available to assist you in times exactly like this when you may be considering debt consolidation.

Types of debt consolidation

Two types of debt consolidation currently exist. One is a DMP, or debt management plan. The debt management plan takes all your current debt and turns it into one payment set at a price you agree to pay each month. While this seems ideal, remember that there is still interest and the smaller amount you pay each month means the more you will pay in the long run. The other option, a DSP, or debt settlement plan involves you paying into an escrow account each and every month. Again, the price is determined by you. While you are paying into escrow, the trustee negotiates a lower rate for you on all your current debt with creditors. Once an amount has been agreed upon by all parties involved, the escrow is released to the creditors. While this means paying less money overall, the debt settlement plan actually lowers your credit rating which may take some time to build back up. The upside to the debt settlement plan is that it works perfectly for those that are nearing bankruptcy.

Which type is right for me?

Again, no one can decide for you which plan is best. The best thing you can do is to do your research. When contacting financial companies that offer debt management plans or debt settlement plans, ensure that they do in fact offer both options. Contacting a company that only offers one will lead to them promoting their option as the only real option for you. Another option you have is to seek third party help. Find a financial advisor that won’t try to sell you one option over the other and has your best interest at heart.

What is guaranteed?

With anything else that is trusted in the financial world, nothing is guaranteed. People can offer sound advice for you or loved ones but in the end the cards will fall as they will. The most important thing to remember is to do your research. Read financial forums or blogs, contact multiple sources for information, even talk to friends and family who have gone through a similar situation. No one can make the decision for you besides you. Debt consolidation, while not recommended for everyone, can provide some much needed relief to those struggling in today’s tough financial market.

Authors Bio

This article was written by the Bankruptcy Clinic, specialists in Bankruptcy help and advice