Debt Consolidation Pros and Cons
Debt consolidation is a debt relief option allowing individuals to combine or "consolidate" multiple higher-interest credit card, or other unsecured debts (such as medical bills, store or gas cards) into a single, more affordable payment each month. Typically, debt consolidation programs are coordinated by debt counselors who customize a "debt management plan" providing consumers with a proven and predictable path to get out of debt.
Pros of Debt Consolidation
- Provides proven, predictable program to become debt free
- Saves money, reduces interest, waives late fees/penalties
- Allows you to pay off debts at a pace that fits your budget
- Manages multiple debts via single more affordable payment
- Puts you back in control of finances to help reduce stress
Cons of Debt Consolidation
- Requires discipline to make single monthly payment
- If you default, you revert to original creditor agreement
- Creditors not required to accept debt relief proposals
- Often takes 3-5 years, or more, to become debt free
- While not necessarily harmful to your credit score, will be "noted" on your report
Summary: What to Expect with Debt Consolidation
If you have multiple credit cards and other unsecured debts like medical bills, doctor bills, store cards, unsecured personal loans, and more – a debt consolidation program coordinated through a debt counselor may be the ideal debt relief option to help you live within a set budget, reduce debts, and get on a path to become debt-free.
How do debt consolidation programs, or debt management plans work?
Typically, debt consolidation programs are coordinated by debt relief specialists, or debt counselors, who conduct brief interviews with you to get details on your credit cards and other debts, as well as how much you can realistically afford to pay each month to get out of debt.
Based on this information, your debt specialist will then customize a "debt management plan" for you. Once you approve the plan, letters will be sent on your behalf to each of your creditors requesting the benefits of debt relief – such as lower interest rates, a waiving of late fees and penalties, and generally more favorable repayment terms. Those creditors who accept the proposals are then added to the debt consolidation or debt management program. For those that do not accept debt relief proposals, you are still obligated to live up to the original terms of your cardholder agreement.
It's important to understand that, just as no two debt situations are exactly alike, no single debt solution is right for everyone. Your debt specialist can provide more details regarding debt consolidation or debt management as part of your free debt relief analysis and savings estimate.
