An agreement is worked out with your creditors based on what you can afford to pay. In many instances payment amounts and interest are lowered helping you to get out of debt quicker and for far less money.
Debt consolidation is typically some type of loan in which most or all of a consumer’s debt is rolled into one payment. Loan types can include signature, second mortgages, home equity line of credit and others. Although in some situations debt consolidation loans can afford a consumer an opportunity to address high credit card interest rates or multiple payments to multiple creditors there are some common risks involved. To begin with, caution must be used in the type of loan chosen. Think long and hard about consolidating unsecured debt to a loan secured by your home. In a worse case scenario, you are putting your home at risk. Also, carefully examine the terms of any consolidation loan with a variable interest rate for what rate increases could mean to you down the road. Finally, understand this – research shows that consolidating your debt into another loan to gain a handle on debt, often back fires on consumers. Odds are that within one year you will increase your debt by using the same credit cards you paid off in the consolidation loan, finding your self making payments not only on the credit cards but also on the consolidation loan.
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