Consolidation Loan Secrets- What’s in a Debt Consolidation Loan?

Consolidation Loan Secrets- What’s in a Debt Consolidation Loan?

We’ve all seen the commercials and advertisements for debt consolidation loan companies. They offer to ‘save you from credit card debt’ and help ‘get your life back on track.’ What they don’t tell you, though, is that what they do for you, you can actually do for yourself. A consolidation loan basically takes all of your debts, lumps them into one bill after negotiating with creditors for a payoff reduction, and then charges you monthly at a lower rate than you might have been paying before. If you had $13,000 in credit card debt, you might get a debt consolidation loan that only has you making payments on a $9,000 balance, but beware of that magical reduction.

What many people don’t realize is that consolidation companies charge fees for their services. There are some ‘non-profit debt relief’ companies out there, but I’m willing to bet that they don’t do anything that you can’t do yourself, either. What do they do to get these payments reduced? It’s really quite simple, and I’ll explain it for you. Once you contact them, they assess your debts, call your creditors, and work out balance reductions. Then, they either pay off the loan for you and you make payments to them, or they act as the middle man.

You might get your debts consolidated to more than 20% off of what you originally owed, but when the company tacks on their fees, you’ll end up paying an extra 5% or 10% off the top. I know what you’re thinking:

‘I’m still saving money, so what’s the problem?’

The problem is that debt consolidation is like a bad word on your credit report. If you have two people with equal debts, and one uses a consolidation loan while the other handles their own debt repayment, the one who took care of their own debts will come out better in the end. Even if it takes longer to get debts rectified, you’ll still be more desirable to credit companies because you don’t have a consolidation loan on your credit. What if they don’t find out?

Trust me, they will find out. It is a loan, and like any loan it will go on your credit report. Call your own creditors, explain your situation, and negotiate payment plans for your debt on your own. You’ll feel more accomplished and you’ll spare your credit. I know it doesn’t seem easy, but you can do it if you’re willing to try.