If the different kinds of debts are overwhelming you, keeping track of everything is just adding to your stress. Dealing with multiple creditors, keeping track of accounts and bills each month is a challenge. In these circumstances, debt consolidation is helpful. How does debt consolidation work?
How Does Debt Consolidation Work?
There are two main debt consolidation options:
- Debt consolidation by taking out a loan
- Debt consolidation programs such as those offered by American Consumer Credit Counseling (ACCC) that do not require you to borrow more money.
Taking out a Loan to Consolidate Debts:
One common approach to debt consolidation involves taking out a loan. How does debt consolidation work by taking out a loan? This is essentially taking out one new, sizable loan to pay off your debts in place of your separate loans. Once you pay off your creditors in full, you have one monthly payment to pay off your loan. You can obtain this loan through debt relief companies, or through your bank, or as a home equity loan if you own a home.
That’s an easy fix, right? Not so fast! This approach meets the basics of consolidating your debt into one monthly payment. However, it involves significant costs and risks. Let’s break it down.
- The interest rate on a debt consolidation loan is likely higher. You have the opportunity to use a home equity loan with a lower rate. However, you are risking the loss of your home if you are behind on repaying your loan.
- The credit cards and store cards that you pay off with the loan will remain open. This raises the very real possibility of running up new debt on those cards.
- This merely a method to shift your debts around rather than actually finding a real solution.
How Does Debt Consolidation Work With ACCC?
As one of the nation’s leading non-profit debt management agencies, ACCC offers a way to consolidate unsecured personal debts without having to borrow more money. How does debt consolidation work with ACCC? In short, we work out an arrangement with your creditors whereby you make one consolidated payment to ACCC each month and we then make the monthly payments to your creditors.
What are the benefits of this approach?
- Often creditors participating in this personal debt consolidation program are willing to reduce your interest rate and waive outstanding fees such as late fees or over-limit fees.
- All or most of your credit accounts involved in the program will be closed to further spending, so you can make genuine progress on reducing and ultimately eliminating your debt.
- The program includes financial counseling geared toward helping you enhance your credit management skills so you can steer clear of debt problems in the future.
Speak with a certified counselor at ACCC today to plan out your debt consolidation program! Call 800-769-3571.