DEBT CONSOLIDATION AGENCIES: Making It Easier For You

2007-03-08 10:33:40

( Financial )



The main function of debt consolidation agencies is to pay up your existing debts to a credit agency or agencies and thereby transfer your mortgage to their agency. Your several loans are combined to form a new bigger loan with a new interest rate. The interest applied to your newly consolidated loan is usually the weighted average of the interest rates for the combined loans. Depending on your credit history however, debt agencies may or may not give you the lowest interest rates possible.

The main goal of debt consolidation agencies is to bring repayment convenience and possibly lower your debt. By bundling several of your loans into one, debt consolidation agencies provide the ease of paying monthly for just one loan instead of paying several debt agencies with different interest rates.

As with almost anything, debt consolidation comes with its own pros and cons. Its many advantages include lowering your monthly repayment fees and longer repayment periods. When you acquire a longer repayment period however, bear in mind that this may entail a higher interest rate. And a higher interest rate easily translates to a bigger debt. Therefore, so long as you can financially manage it, it is always better to opt for a low interest consolidated debt rather than a long repayment period but with a higher rate.

Remember also that once your debts had been consolidated, they can never be unconsolidated again. Repayment periods for consolidated loans usually begin immediately and while there are federal provisions for debt cancellation, consolidated loans can no longer qualify for such provisions.

Before you consolidate, sit down and calculate the costs. You need to be certain that you won’t be paying more in your monthly repayment fees than the repayment sum of your previous loans. Otherwise, you may be getting yourself into more debt.

Consolidated or not, remember that any process does not change the fact you are still in debt. So while debt agencies have provisions to make repayments easy for you, learning how to manage your finances properly remains the definitive step towards a debt-free status.


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