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Debt can feel like a heavy chain around your financial freedom, but debt consolidation companies offer a key to unlock a path towards debt relief.
These companies provide a beacon of hope for those drowning in multiple debts by consolidating them into a single, manageable payment.
In this guide, we'll explore how debt consolidation companies operate, the benefits they offer, and the considerations you should keep in mind to navigate your way to financial stability.
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What is a debt consolidation company?
A debt consolidation company is a debt relief agency that works by combining all your debts into one monthly payment.
The aim of this is that the monthly payment amount will be lower, as most companies have a less demanding credit policy than typical banks or lenders. The catch is that if you are unable to keep up the payments, you will only go into debt again and the balance of the new debts plus interest might be greater than before.
Be sure to consult an expert in both lending and finance before signing on any dotted lines.
Find out what makes Pacific Debt Inc one of the
best debt consolidation companies for debt relief.
How does a debt consolidation company work?
Debt consolidation companies can help you lower your interest rate on credit card balances and save money over the long term. It involves consolidating all of your debt under one consolidated loan, including home equity loans. This allows you to better manage monthly payments and either pay down the principal balance or use any savings from lower interest rates to make extra payments.
If the company is legitimate (you should never work with a company that tells you not to contact the original lenders), most debt consolidation companies will require two pieces of information as a minimum- an estimated monthly income for both individuals in the household and a list of debts they're requesting a new consolidated loan for.
Keep in mind, this type of credit repair only works if there are responsible people handling it and they are working to make debt payments on time. If there is a lapse in making those debt payments, the individual will be hit with late fees and possibly even interest rate hikes.
Pros and cons of using a debt consolidation company
There are both pros and cons to using a debt consolidation company. There is the possibility that you will not be able to repay in full, so the debt would follow you or your credit may take a hit if it is reported to a credit reporting agency.
Monthly finance charges may increase because the monthly payment will likely be larger than payments made separately on each obligation, yet it is possible for interest rates on new debts acquired to remain lower than an individual's original high-interest rate debts.
The biggest advantage of using a debt consolidation company over dealing with creditors independently may be liability: Debt consolidation companies work as an agent for borrowers by coordinating loan schedules and assisting creditors with information and payments.
Things to look out for when choosing a company
Debt consolidation might seem like a great idea but you need to do your due diligence and find out which companies are legit.
- Look up their Better Business Bureau rating.
- Check to see that the company is licensed in your state, and if you're unsure of where to find it on the website, call the department yourself. Don't rely on the information given by an outside organization.
- Check out their payment terms like how long it takes before you qualify for another loan or if there's a fee at all. If they are late with payments, what penalties do they incur? What is their interest rate?
- Be wary of companies that require you to provide your personal banking information and do not have a good record on the Better Business Bureau.
- Call your current creditor or other lending agent and ask them if they offer any kind of debt consolidation options because that is likely the best place to start. Trust your gut, avoid any company that tells you anything they can't verify, such as whether or not you are eligible for their service.
Is it possible to get out of debt on your own without using a consolidation company?
Yes. But it's an uphill battle, and likely a losing one for some. To consolidate your debts independently you need to have several thousand dollars in available funds.
Debt consolidation is really about transferring the debt to another company that will then handle the monthly payments and ensure that you stay on top of your balances.
It's not bad if you are financially disciplined and motivated enough to follow through with the plan, but it can be a dangerous path when taken hastily without being prepared or knowing what lies ahead - so think twice first before taking this course of action!
Tips for getting out of debt on your own
Spending less than you earn, creating and sticking to a budget, living below your means, and minimizing debt should go a long way towards solving the problem.
Write down everything you have, anything or everything that is of value. Create an inventory.
Contact your creditors and tell them what you're doing. They may delay if they know what the process entails for them and will be relieved when it's done. Ask for lower monthly payments.
Create a budget with additional income from another source to stretch your money as far as possible before things start to get tight again (instead of just paying off high interest debt first).
Tips for getting out of credit card debt
Identify which one of your credit cards has the lowest interest rate and should ideally go to zero first, then pay as much money down on it as possible until it’s paid off.
If you have a card with a high-interest rate and don't use it often, instead of transferring your balance from one card to another, try paying off just the minimum amount (or maximum depending on the terms). This should help keep it in good standing and avoid ruining your credit score.
Suspend unnecessary expenses, such as canceling cable or going out to eat more than once a week-if not at all.
Tips for reducing student loans
Take a side hustle: You might have to start from the bottom, but it can be worth investing in yourself. Rent out your apartment while you're away at school or sit one morning shift at a coffee shop. Work an overnight shift before returning to campus--it'll help build your resume, and then you can take care of business when you're around for classes.
To lower monthly payments: You should always pay more than the minimum amount due on credit cards, which could substantially lower the interest already accrued and help you retire your debts faster than if they are repaid over time without any prepayments.
Lower total debt owed with less borrowing: It may sound counterintuitive, but by taking fewer loans, you could actually lower your debt by paying less interest.
Tips for paying off car loans/financing in full
Pay extra every month. By paying off before the term is up, you'll be able to get more of your money back from interest.
The longer a loan term goes on, the more predictable your payments become and the less risk you incur from changing financial situations. Getting a lower rate on an extended loan will always save you more than getting a shorter one with higher rates because at some point the difference in return is greater than the difference in interest costs for that time period.
- Focus on principal. Don't worry about interest and don't negotiate interest rates or car payments too low (unless you are paying them off fast).
- Pay a little more than your planned total monthly payment amount at least once a year, when you can afford it. It will help make sure the loan is paid off in as short a period of time as possible.
- Set up a savings account and transfer $175 every two weeks. By the end of the year, you'll have put away over $5K more than you may have on your own.
How Our Debt Relief Process Works
We understand that embarking on a debt relief program can feel overwhelming. That's why transparency around our process is key.
Here are the step-by-step actions we take to help you become debt-free:
- Initial Consultation: During our free consultation, we conduct a full financial review to understand your unique situation. We explain all your debt relief options and make personalized recommendations on the best path forward.
- Program Enrollment: If you choose to enroll, we set up your dedicated account and go to work contacting your creditors and negotiating on your behalf. We handle everything - no need for you to talk to creditors.
- Special Purpose Account: We will help you set up an FDIC-insured bank account that will be used specifically for collecting and disbursing your settlement funds. This account gives you complete visibility and control over your money.
- Deposit Accumulation: Each month, you will make set deposits into your special purpose account that will later be used to reach settlements with your creditors. The funds are fully refundable if needed.
- Settlement Negotiation: Once sufficient funds have accumulated, we negotiate with your creditors to settle accounts - typically for less than what you owe. Historically we have achieved 40-60% settlements on average.
- Settlement Disbursement:
As accounts get settled, funds from your dedicated bank account are disbursed to pay off the reduced balances until everything is resolved.
- Debt-Free Future: Within 24-48 months, all your accounts are settled and paid off. You are now debt-free aside from potential tax liabilities, which we can also assist in managing.
This predictable process has helped over 15,000 people settle $350M in debt over the past 19 years. Our customers see an average 51% reduction in what they owe.
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