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Debt Consolidation Programs > Debt Consolidation Program: A Go-Go or a No-No?
Debt Consolidation Program: A Go-Go or a No-No? |
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Debt consolidation programs are fast becoming very popular. A debt consolidation program is a way of bringing together all your debt into one consolidated account. By doing this, one can expect a lower interest rate on the consolidated loan. But, if you closely check out the process or ask any of your friends who might have gone for debt consolidation programs, you would see a different picture. A debt consolidation program allows you to pay only one low monthly payment. That might trap you into thinking that this is a hassle free situation. You might think that you would be able to repay it anytime you want. But things are not as simple as you think. With a single monthly payment at your hand you may be tempted by the idea of spending above your budget. As a result, you may spend the extra money on other unnecessary items. And that may create problems in repaying the loan on time. If you possess a credit card that you don't use judiciously, you may get into trouble because the interest rates on credit cards are comparatively higher. Another drawback to a debt consolidation program is that the application fees of the program may be unreasonable. There are a lot of companies that are indiscriminately charging customers huge amounts of money. To stand out in the market, most companies compete among themselves and initially promise lenders a low interest rate. But later on they do an about turn and raise the interest rate. Some companies even ask for up front payments and donations from the customers. You may find some debt consolidation program companies that promise you free and quick service. But you can believe in them at your own peril. Neither do you find any kind of free assistance nor do you get a really quick service. Remember, the companies that claim that they would be able to fix your credit immediately and give you instant debt relief should be avoided. It's better for you to compare the different companies and organizations that offer debt consolidation programs. In your research, you should pay attention to the difference between a debt consolidation loan and a debt consolidation program. Many people fail to make the distinction. They mistakenly assume that both are the same, which is not actually the case. In a debt consolidation program you use your income to pay only one monthly consolidation payment, while in a debt consolidation loan; you actually get one loan to cover all the debts that have been consolidated into one. Receiving a debt consolidation loan may actually be a negative thing for you, although it sounds odd. No doubt, the interest rate is much lower on such a loan. But the repayment period is longer, sometimes up to 30 years. In fact, the inordinately long time period for paying back the loan makes the low interest rate irrelevant. Now, back to the debt consolidation program! Although these programs have many drawbacks, they have some great value nevertheless. They are capable of reducing the interest rates, as they allow for only one monthly payment. The debt consolidation program company deals with only one creditor instead of many creditors for various unconsolidated loans. But to be frank, you have to take every step with extreme care to avail the benefits. First of all, you have to create a budget before you head for a debt consolidation program. If you were able to maintain a budget, you would know exactly what your expenses are. If your expenses are more than your income, then you can take proper measures to correct the situation. Second, if you are facing problems regarding your payments, you should contact your creditors immediately and discuss everything clearly. Don't forget to explore the available options like balance transfers and rate reductions. Third, freeze your credit cards when necessary. Freezing is nothing but stopping the use of your credit cards for some time to gain some control over your indiscriminate spending habits. To sum up, a debt consolidation program has both positive and negative aspects. They are just like the two sides of a single coin. It is advisable to do some research before you go for that debt consolidation program.b |
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