An Informative Guide To Bad Debt Consolidation

With the global economic crisis in the final stages of its death

, millions around the world are finally breathing sighs of relief. Debt seemed to have become the order of the day, with families battling to deal with their debts the hard way. But if it had not been for bad debt consolidation we would have been talking about a totally different story altogether, perhaps one filled with tears and momentary bloodshed.

In a nutshell debt consolidation is when all your debts are combined into one single debt. Companies specializing in servicing bad debts offer you two options. They either give you a consolidation loan, or they just amass all debts and proceed to disburse payment to different creditors at reduced rates of interest.

In the case of a consolidation loan the consolidating company will grant you a loan. Such a loan will be sufficient to pay off all debts, and they are the ones that do it for you. However, in exchange you will have to proceed with making monthly payments to them in order to pay back that loan. For such a service they normally charge you a monthly sum you must pay to them every month.

Whilst the process of consolidation is generally helpful, it is not entirely beneficial. To begin with, such loans are normally more costly to pay back. Instead of having to pay the money back in the space of 5 years, you might end up paying the consolidation company for 5-10 years. So when you do the mathematics it can be more expensive than to just pay your own debts.

Sometimes you might even run into fraudulent consolidators who charge you more than the stipulated rate of interest. With such companies hidden fees and charges normally surface a few months down the line. In the turmoil of indebtedness it can be hard to notice this, and these guys take advantage of this.

One thing you should always bear in mind is that these loans have to be paid back on time. Failure to do so can greatly worsen an already tarnished credit report. And with a bad credit score it can be even harder to finance further debts.

But there are obvious benefits to consolidation. For at least a few years you get to deal with one creditor breathing down your neck, the debt consolidator. In addition to this you can experience reduced interest rates because you will no longer be dealing with different creditors and their different rates of interest.

by: Alexis Ford

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