Once you have decided that you want to consolidate all your debts you have some decisions to make about how you do this and which company you approach to help you to achieve a successful result. You first of all need to ensure that you understand what debt consolidation means, so that you are clear about the type of debt company to approach, and so that you know what you will be asking them to do for you.
I want to clarify the meaning of debt consolidation first, as there are different interpretations of it, which can be confusing. Debt consolidation always means making an arrangement that gives you just one payment to think about, instead of lots of individual debts to different organisations. However, there are two different ways to achieve this. In the UK, the term consolidation almost always means taking out a new loan to pay off all your old debts. In the US, it can also mean that, but is more usually understood as putting all your debts into a debt management plan.
This article is about how to consolidate your debts through a debt management plan, which is the most widely used approach to debt problems in both the US and the UK. You can consolidate all your debts through a loan in both countries too, but there are fewer occasions when this is the best solution, whereas a debt plan is frequently the best option available for most serious debt situations. So you need to be clear that you are looking for a debt management company to help you, not a debt settlement company, which is a completely different thing.
What a debt management or debt consolidation company will do for you is negotiate with all the different companies that you owe money to, and set up new agreements for how that money will be paid back. The best companies will manage to change the repayment terms to include less interest and other charges, so that your debt is frozen and your monthly repayment amounts are reduced. The combined effect of all these changes is that the total amount you pay towards your debts each month is reduced, and it is rolled into just one payment which you make to the debt management company.
As well as being more affordable and easier to manage, you will also benefit from not having each of your individual creditors contacting your for payment all the time. The debt company will deal with them for you, and pass on your payments at the agreed rates. To consolidate all your debts in this way, you will normally need to have quite a bit of debt to at least two or three different creditors. These debts must be of the unsecured type, which just means that the debt is not secured against something you own, like your house. Mortgages, for example, cannot be included in debt consolidation, but most other things can, including credit cards and personal loans.
Once you have an understanding of how to consolidate all your debts, you need to find a good company to set up the payment plan for you. This is the most crucial stage, because not all organisations are reputable or trustworthy, and you need to be sure that you are getting advice based on what is best for you, not the debt company.
As with most things, you can protect yourself by shopping around and comparing different services. If you apply to about three different companies that you know to be reputable, you can then go with whichever you think is offering the best deal. This depends on finding a list of good companies to start with, so you should follow recommendations for organisations that are known to be well established and ethical, and which have a proven record of success in assisting people out of debt.
