Debt Consolidation Information

After years of economic strength, most people thought that the economic downturn that began in 2008 wasn't going to last. Although tens of thousands saw their income and investments affected, they expected that another expanding bubble would carry them back up quickly. Rather than reining in their spending, they used credit to cover the gap, and as the downturn dragged on they found themselves in a debt position they could no longer manage. Now, many of these people are looking for solutions, such as getting a debt consolidation loan, in order to put their lives back on track.

Debt consolidation is a simple concept. When we are overspending, we tend to diversify our debt. Some might be on a store credit card, some on a gas card, and some might be owed to store-originated credit lines for electronics and furniture. When we can't pay we end up with a whole host of creditors calling us. Consolidation lenders provide a new loan to cover all those debts, satisfying creditors and simplifying the process of repayment by replacing many bills with one.

Companies don't like to have unpaid bills on their books. Debts are like vegetables; when they get old and rotten they're no good to anybody. So most companies are generally willing to accept even a fraction of the face value of a bad debt. Something is better than nothing, and that payment allows them to take the account off their books. With a consolidation loan in place, a debt manager can renegotiate aggressively with creditors.

The debt management companies that advertise on TV routinely have customers (or actors portraying customers) telling the audience how they owed $20,000 and only had to pay $7,000. The renegotiation process is what drives those savings. The consolidation loan, which gives a debt manager a pile of cash to play with, is what drives renegotiation.

This process can be highly beneficial to both creditors and debtors, but that doesn't mean that every debt management company has its clients best interests at heart. There are good and bad companies in any market, and debt consolidation is no exception. Some put their clients first. Others don't.

One issue in the debt consolidation business is that the people who need help with their debts tend to be people who are more likely to make bad financial decisions. That makes them easy prey for predatory companies who want to exploit their bad situation for profit, and the process of originating a debt consolidation loan can tell you a lot about the company you're working for. Consolidation loans are high risk, so interest rates are likely to be high. But are the rates gouging you? How transparent is the counselor about other fees, about penalty interest rates, and about the repercussions of a late payment? A debt manager who's on your side is going to be very open; one who is trying to sell a loan is going to hide the truth.

You should also be sure to check into the debt manager's follow-through policies, especially in making sure that the debts that are paid with your consolidation loan are removed from your credit report. First, removing these debts is an important step in repairing your credit. Second, whether or not your manager is going to be assertive in this regard will tell you a lot about how important your financial health really is to him.

Using a debt consolidation loan to restructure your debt and to build a road out from under debts you cannot pay can be a helpful and even necessary part of restoring your financial health. You just have to be careful to work with a credible company that puts your interests first, and you have to be diligent about making your consolidation loan payments on time.

I'm a debt relief consultant specializing in debt management solutions. You may also be interested in reading more information about what a trust deed is.