How To Be Debt Free

When the economic downturn in the US and Europe began with the precipitous stock-market drop in 2008 most people didn't think it was going to last

. Many of those who had their incomes or worth affected in one way or another thought that the change would be fleeting and that they would get back on their feet in no time. They went on spending money, using debt to cover their gap, and they got in over their heads. More and more people in this situation need a debt consolidation loan to get their lives back on track.

The concept of debt consolidation is easy. You take a basket of unsecured debt that's gone bad, and you get a new loan to cover it. Creditors get the loans taken off their books, which they like very much. The debtor is given a tool with which he can pay off his debts, and that tool usually has some pretty strict penalties for nonfeasance attached. In some ways those penalties can be the stick that helps a person chase the carrot of being debt free.

Most companies don't want bad debts on their books because they don't look good. Consequently, it is common for creditors to be very willing to work with a consolidation company to resolve those debts, including erasing a debt for only a fraction of its face value. Even if they only get half of what they're owed, they still get something, and they also get to remove a bad debt from their books.

This is how debt management companies manage to save their clients money. When you see the commercials on TV where someone says, "I owed $35,000, and I only had to pay $9,000," the reason for this is that the debt management company arranges consolidation loans. Those loans give them a pile of cash to work with. That pile of cash allows them to negotiate successfully with creditors.

The process can work extremely well, but as with everything there are good and bad debt management companies. Some use good methodology; some use bad methodology. Some provide a valuable service that can change their clients' lives for the better. Some put their own interests first and make money at their clients' expense.

The first thing to look at is the interest rate on the consolidation loan. Good consolidation lenders charge a fair interest rate. But bad ones know two things about the people who wind up needing their money. The first is that they are probably paying extremely high interest rates for their credit cards. The other is that they probably aren't very good at making sound financial decisions. Knowing this, some companies will charge extremely high interest on consolidation loans and will use the companies they work with to push those loans on their clients.

You should also be sure to check into the debt manager's follow-through policies, especially in making sure that the debts that are paid with your consolidation loan are removed from your credit report. First, removing these debts is an important step in repairing your credit. Second, whether or not your manager is going to be assertive in this regard will tell you a lot about how important your financial health really is to him.

If you're careful about the company that you work with, and if you're diligent about doing your homework and being informed enough to keep that company honest, then a debt consolidation loan can open the door to a whole new beginning.

by: coleyghenderson

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