Common Questions
What is Debt Consolidation?
The term debt consolidation is used frequently in the arena of debt management and is somewhat of an umbrella term that fits into many different management programs. Debt consolidation can come by way of a consolidation loan or through a balance transfer on a new or existing credit account. These forms of consolidation require you to borrow money to pay off several debtors at once, leaving you to only make one, and hopefully low, monthly payment to the consolidating lender.
Another form of consolidation is through debt management programs; typically Credit Counseling otherwise known as CCCS (Consumer Credit Counseling Service). Some services simply refer to themselves as Debt Consolidators. With these programs you do not consolidate your debts with a loan. Rather, you hand all applicable unsecured debts over to a third party credit counselor or debt consolidator who takes over your account payments. You only make one monthly payment to the third party counselor or consolidator. The average payment plan lasts 4-7 years. At the end of that period, the consolidator guarantees that all of the debts included in the original plan will have been paid off.
Your credit will suffer. When you are enrolled in a Debt Management Program, your current creditors will report credit counseling or DMP to the bureaus. This listing not only stays on your report during your DMP enrollment (usually 4-7 years), it could potentially stay on for an additional 7 years; the typical reporting time for negative information.
Despite the negative listing, debt consolidation through a DMP is still more favorable than declaring bankruptcy. Bankruptcy is the worst possible listing, but debt consolidation is a close second and should only be used as a last ditch effort if you are facing bankruptcy.
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