Debt Consolidation

Debt consolidation is increasingly becoming an alternative way for many people who have fallen on hard times, especially in this economy; to improve their credit rating.
It works by the debt consolidation company sending a proposal of payment to your creditors, which is usually just a letter detailing your expenses, and the amount you are willing to pay, usually monthly to reduce or clear off the outstanding debt.

Creditors usually do not disregard a repayment offer, especially if it is coming from and backed by a recognised and respected debt consolidation company, since it shows initiative to the creditors that the borrower is willing and taking steps to clear their outstanding debts, and because at the end of the day, they will be getting their money, so if at the repayment period you have managed to clear your debt, and paid them the money owed, they will still be getting their money back, and seeming to help you at the same time, so a win-win situation for both parties.

What normally happens with debt consolidation, is that while your debt is being paid off, you will not normally be able to apply for new credit cards, or other loans which is to be expected, because let's face it if you applied for new credit cards, or loans while your debt was being paid off, there is no guarantee that you will not fall back into the same habits that necessitated a debt consolidation intervention in the first place.

 While your debt is being consolidated, your credit score and rating, goes down for a while whilst you are paying off your debts, but this should not be a cause of concern, since your credit score and rating goes back to an even better position once your debt has been cleared off, as it shows that even though you fell into financial difficulties which required a debt consolidation firm, you showed initiative and perseverance in signing up to a debt repayment agreement, and even managed to stick to the repayment plan, till your debts were cleared. This route you took in clearing off your debts and improving your credit rating and score from not being able to apply for credit to being financially buoyant can only make you look good in the eyes of other creditors, and so credit card and loan companies, will be more than happy to do business with you again.

Debt consolidation is on the increase for many reasons. A higher percentage of people routinely find themselves facing significant debt than in prior generations. As previously stated, consolidating those debts then typically offers such a person a greatly reduced repayment rate for all their debt. Payments are then reorganized into one monthly payment rather than several, and the pay date can often be negotiated to the borrower's advantage.

It is mainly the more common forms of debt that are consolidated. Those include credit cards, student debts, car loans, and house loans. Once consolidated, the new interest rate can be surprisingly low compared to the original rates, which may be as high as twenty percent.