Americans now have more debt than ever.
Do you have debts that are starting to become unmanageable? Is it starting to impact your health and livelihood?
If so, you might be wondering, what exactly is debt consolidation and how do debt consolidation companies work?
If you are struggling under seemingly insurmountable debt it’s important that you know about all of your options. Some of these include types of debt consolidation.
But before you take the first debt consolidation solution that you find, you also need to know about the different forms, as well as how to choose a debt consolidation company. Otherwise, you might find yourself in deeper waters of debt than you were before.
However, once you are informed about the different debt consolidation options, you might be able to leverage these to get clear on your debt once and for all. Read on as we break down the definition of debt consolidation and the role of debt consolidation companies.
What Is Debt Resolution?
First things first, what is debt resolution? Debt resolution is defined as the partial or complete forgiveness of debt, or the slowing down or halting of debt growth.
Debt resolution can take a couple of forms, namely debt consolidation and restructuring your debt. Some companies also offer tax debt resolution services, which is specifically designed for assisting individuals in meeting their tax deficits.
Debt consolidation is a type of debt resolution and can be done on a personal level or through a debt consolidation company.
The way debt consolidation works is it combines all of your debts by refinancing with a new loan or line of credit. If you do this yourself, you can either choose to take out a personal loan, or a balance transfer line of credit.
These new liabilities can pay off your different debts, leaving you with one monthly payment to make under new terms. The goal of debt consolidation is to also secure lower interest rates and fees that you currently have on your debt. This, over time, will save you money, helping you to pay off your debt faster.
With a personal loan, you need to ensure that the initiation fee of the loan and the interest is not higher than what you are currently paying. You also need to ensure that the terms are ones that you can meet.
Besides the DIY route, you can choose to have a debt consolidation company handle the logistics for you and secure you the best deal.
Restructure your Debt
Restructuring your debt is another debt resolution option that companies offer. Like debt consolidation, you can also do this on your own, although this is not always advisable.
Restructuring your debt is the term used to describe when either you or a company works with your creditors in order to lower your debt amount. The aim is to get a portion of the debt written off or forgiven, giving you a headstart on paying back the rest.
Now that you know about the two main types of debt resolution, let’s take a look at how debt resolution companies work.
How Do Debt Resolution Companies Work?
Debt resolution companies will generally offer either consolidation solutions, restructuring your debt, or tax resolution solutions.
Debt Consolidation Companies
Although you can do DIY debt consolidation, in some cases you might want to use the services of a company that specializes in debt consolidation.
This is especially true if your credit score will not allow you to take out a loan with an interest rate that is lower than what you currently pay on your debt. This is often the case when struggling with overly large debt payments, as your credit score may have taken a beating.
This is where debt consolidation organizations come in handy.
First, the debt consolidation company will set up a debt consolidation solution for your liabilities. They will then work with your creditors to try and secure better interest rates. You then pay the company one amount each month, and they distribute this to your creditors.
This consolidated amount is generally less than the total sum of your debt payments. Interest rates with these companies generally range between 1% and 17%.
Debt Restructuring Companies
These companies professionally help with debts for their clients.
The way that they do this is as follows.
When you sign up with them, they will initially set you up a holding account. They will then instruct you to cease payments to your creditors. The payments will instead go into this account where they will accumulate.
At this point, the debt restructuring company opens a discussion with your creditors.
As creditors become increasingly convinced that you can’t make a payment, they might become open to forgiving a portion of the debt.
Debt restructuring companies typically charge a percentage fee, either on your total debt or on the amount they can write off for you. Debt restructuring companies are generally able to work to reduce your debt to 60-70% of the balance owed.
Are You in Need of Debt Resolution?
Now that you know what the different forms of debt resolution are and how debt resolution companies work—is your next task to start looking for reputable debt resolution solutions?
If so, we are here to make your hunt a whole lot easier. Sifting through different debt resolution solutions and offers is enough to leave anyone’s head spinning and can take up a sizeable chunk time.
If you want to take the easy and sure path, then try out our online matching tool. Once you have entered your details, we will pair you up with a list of solutions that are tailored to your specific situation.
If you have any questions, just give us a call and we will be happy to help.