If a person is looking to deal with debt, a credit counselor may be able to offer some relief. Debt consolidation is also known as debt recovery, and these plans can help debtors get back on their feet. However, if they’re poorly done or entered into for the wrong reasons, the results can be less than optimal. Below are some things to know about consolidating debt.
- Debt Consolidation is a third party payment acceptance system. If a person is tired of juggling different payments, a plan can simplify things. Here, one payment is made to the credit counselor, who then distributes the money to creditors. Agencies don’t make loans or settle debts; rather, they have arrangements with financial institutions so that more of the payment goes toward the principal.
- All agencies aren’t the same. Finances are important, and customers should be choosy. Look for a non-profit agency that will take the time to explain “what is debt consolidation”. These entities ensure that member agencies are held to rigorous standards, and that counselors are certified. Payments and statements should be sent on time, and there should be a solid support system in place.
- Plans are essential identical. Financial institutions don’t favor one organization over another, and all plans share the same structure. Counselors determine how much it takes to pay off creditors within five years, and payments are typically about 2.5% of the debt total. However, bigger payments can be made as budgets allow.
- No charging until the debt is paid. Part of the agreement with capital debt solutions is that accounts will be closed and no new ones will be opened until all debts are paid. This can be difficult for those who are used to charging everything, but it makes sense.
- Consolidation can be regarded the same as bankruptcy. With debt consolidation, 100% of debts are paid, rather than being discharged or settled for a lesser amount. However, credit reports can still be affected if monthly payments are lower than what’s normally paid. Some creditors note that payments are being made through a third party, which can put up a red flag.
Consolidating debt through a credit counselor can be very helpful, but there are debt solutions that can be accomplished by debtors themselves. By not charging anything else, and by negotiating with creditors, debtors can learn to live within their means and prepare for emergencies.