What is Debt Consolidation?

The consolidation effort itself is negotiated by your new loan provider, who can lower your monthly payments by as much as 50% (30-35% is a more typical range). Debt consolidation companies have better interest rates with most creditors than an average consumer, which is how they can largely reduce your payments; by reducing and in some cases eliminating interest charges from your accounts. They are in essence 'buying' your debt and paying it off at a better rate to your original creditors.

Debt consolidation is most useful for people with a number of high-interest loans. These may include credit cards or other high-interest loans/bills; basically any debt with 15% or higher interest is a prime candidate for lower rates. A debt consolidation service can combine all these high-interest loans and allow you to make just one convenient monthly payment that could be as low as half of your current obligations.

• You apply for debt consolidation at a good company or organization.
• Once approved, you agree to pay the new, single monthly payment on time at your reduced rate.
• You typically must also agree to stop using any credit cards that were included in the consolidation.