Does a Debt Consolidation Service Reduce the Amount Owed?

There are many different types of programs designed to help consumers pay down out of control debt. The available options range from simple counseling to full-blown institutions that attempt to negotiate with the banks.

Loan modification and debt management agencies contact the creditors and try to work out some type of deal in order to reduce the actual amount of the loan. While this can be helpful since it will reduce the amount that is owed, it will reflect negatively on your credit report.

Debt consolidation services do not contact the lending institutions directly. They do not negotiate. The only thing a consolidation service does is tally up the debts, asses the risks, and issue loans to the consumer to cover the cost of paying off bills immediately.

There is no reduction in the amount owed from using this type of program. You will have to pay the exact total requested. However, there are two other important points to consider.

The first is interest. There is a chance that the combined interest on all of the debts may actually be higher then the interest on the single consolidation loan. Ultimately, this means that the amount paid to the service will be less than what would have been paid to the creditors.

The second point is the savings on peripheral charges. If part of the debt incurred included mounting late fees or penalty charges, then you will stop accruing these expenses once the creditors are paid. If payments on the new loan are made in a timely fashion, then this can add up to some very large savings over the amount that might have been owed.

In conclusion, debt consolidation services do not reduce the principle amount owed to lenders. They do offer the opportunity to reduce some of the associated charges, and that could save you money in the long run.

Do I Need Good Credit For Debt Consolidation Loans?

Debt consolidation loans are the best financial instruments to sort-out your cash-flow problems. In this age of ATM and credit cards it is very easy to accumulate debt without your knowledge only to find out later that you can no longer afford to pay those small bills without outside financial assistant because of the various charges to individual debts. This is where debt consolidation loan comes to our rescue.

By combining all your various debt and paying them with another bigger loan you will have eliminated a lot of charges from the small debts and also created a peaceful environment conducive for focusing on the single loan and other money matter. One important factor to note is that debt consolidation loans come when bill which we could otherwise repay comfortably have overwhelmed us due to their charges and fees, but still capable of repaying them with our current cash flow stream but at exorbitant prices which we can bypass if we take debt consolidation loans.

An important point to note in that statement is that whoever qualifies for this kind of loan has the capacity to repay the bill individually but correctly find it economical to consolidate them into one so that he can enjoy the economies of large scale. This essentially means that for you to qualify for the larger loan your credit rating must be such that it can withstand the effects of the larger loan in terms of charges and repayments monies. Otherwise how can you repay the debt consolidation loan without the requisite credit? Okay, the lender might overlook some minor credit delinquencies after thorough credit appraisal. But you have to prove that you won't default on any of you monthly payments. In fact in some cases you might be requested to furnish the lender with equity security, this shows the seriousness with which lender treat your credit standing.

In as much as it is wise to take debt consolidation loans when repayments and fees from other smaller debts are skyrocketing it is mandatory to consider your credit position because that's what determines whether you're get it.