Do debt consolidation programs work?

Question

Do debt consolidation programs work?

Answer

Whether or not debt consolidation programs work depends on your definition, and it depends on what debt consolidation program you use. Debt consolidation is essentially just a fancy way of saying you take a bunch of debts and roll them into one larger debt, thus combining them. This can be done by taking out any type of loan to give you enough money to pay off a bunch of smaller debts. If you have 5 credit cards, for example, and you owe $100 on each of them, you could take out a new $500 loan to pay all of those old ones. This example is a form of debt consolidation.

Pros and Cons of Debt Consolidation Programs

Debt consolidation programs are just one way of getting the new loan you need to consolidate your debt. If you can qualify for such a loan, you will be able to pay off your old debts with the new loan. In that sense, the consolidation programs work. However, many programs and loans specifically labeled as "debt consolidation" may actually not be a great deal for consumers. They may have unfavorable interest rates or other disadvantageous terms.

Other Consolidation Options

The better choice when considering debt consolidation is to just get a loan, through a bank or credit union or even through tapping the equity in your house, and use that loan as a debt consolidation loan. The interest rate will usually be better. You can then concentrate on paying down debt. The consolidation loan should be a good thing, as long as you stop incurring new debt on the cards you paid off with the loan.

Obtain Legal Advice

Before taking any debt consolidation loan or getting into any sort of consolidation program, you should speak with a debt consolidation lawyer. He or she can explain all of your options for dealing with your debt and help you to choose one that is right for you.

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