Frequently Asked Questions about Debt Consolidation
The answers to the most commonly asked questions about debt consolidation are included below.How does debt consolidation differ from a consolidation loan?
Why debt consolidation services differ from consolidation loans is because no additional debt is involved. In other words, a consolidation service customer does not have to take out another loan to pay off existing debts. On the other hand, with a consolidation loan, the borrower uses a home equity loan, balance transfer, or other type of loan in order to combine old debts into one payment.
Can you explain why debt consolidation works?
Debt consolidation works because it tackles the culprit behind most consumers' debt problems-high interest charges. Your debt consolidation service will focus on making your interest rates more manageable, thereby also helping you achieve more reasonable monthly payments. With less of your money wasted on interest expenses, you can pay off debt faster and more affordably.
If I consolidate my debts, will I still make payments to my creditors?
The answer to this question is yes and no. You will not make payments directly to your creditors after you consolidate, but your consolidation service will. The payments you send to your debt consolidation company will be distributed among your creditors for you.
Will I qualify for debt consolidation?
Whether you will qualify will depend on the standards of your particular consolidation service. You can ask your service about its qualification requirements when you receive your free quote. Usually, debt consolidation services tend to require that their clients have a certain level of unsecured debt, are not presently involved with a consolidation program, and are not seriously delinquent on their accounts.
Can I still use my credit cards after I consolidate?
The reason why debt consolidation works is because it helps you pay off your debt more quickly, but it will not work if you continue to rack up debt on your credit cards. For this reason, most consolidation services require their clients to cancel the credit cards included in the consolidation. In some cases, clients can keep one card for emergency use only.
What will debt consolidation do to my credit?
Everyone's credit score will react differently to debt consolidation. Many clients see an increase in their scores because their debt begins to diminish after consolidation. However, some creditors will penalize borrowers for their participation in debt consolidation, so a small drop in your credit score is also possible. Generally speaking, however, anything you do to pay off high interest debt will help your credit in the long term, including debt consolidation.
