At Project Debt Relief we’re all about breaking down difficult topics regarding debt. One of the most common questions that we get – so we know it is a topic that many people are confused about – is ‘how does debt consolidation work?’
Well, there is no easy answer to that question. Debt consolidation works in many different ways depending on your particular situation, the particular type of consolidation you are seeking, and the consolidation company that you are having assist you. However, the basics of almost every situation are exactly the same.
Below we explain how debt consolidation, one of the most popular and most effective forms of debt relief, works.
How Debt Consolidation Works in Theory
Like many things, the theory behind and the actual practice of debt consolidation are slightly different in the way that they work.
Debt consolidation is designed for people who have various debt payments to make each month. Instead of making you manage them all separately, it allows you to combine, or consolidate, them all into a single debt.
Most people who consolidate their debts find a single payment much easier to pay off each month. Basically, it helps organize your monthly payments.
Furthermore, a single loan can often lower your overall monthly payment and interest rate. And a lower interest rate means less money put towards paying off your debt each month.
Debt consolidation is one of our favorite methods of debt relief here at Project Debt Relief and we have written several blog posts on it in the past. Another that might be of interest to you is Will Credit Card Consolidation Help Eliminate Debt Fast?.
Where to Get Debt Consolidation
If debt consolidation is sounding like a stellar option to you right about now and you’d like to try it out for yourself, you’ll need to know where to get a debt consolidation loan from.
There are many ways that you can go about getting one of them and many types of companies that provide them. A few of the most common places to get debt consolidation loans include:
- Credit Card Companies
- Mortgage Lenders
- Peer-to-Peer Lenders
- Debt Management Companies
- Credit Counseling Companies
Should You Use Debt Consolidation
Many people who explore the option of debt consolidation start to wonder if they should use it themselves. They tend to think ‘is debt consolidation really right for me?’ After asking yourself how debt consolidation works, this is the natural next question to ponder.
Debt consolidation might be right for you if you have tried other methods of debt reduction with little or no success. The most important thing to keep in mind is that the goal is to reduce your debt, and if debt consolidation can do that for you, then great. Go for it. If not, research other debt reduction options.
Debt consolidation should only be considered if you want to eliminate your debt. It should never be considered as a means to make more credit available to you. It is especially helpful for those who need breathing room from their debts, are confused about receiving too many bills each month, and have high interest rates.
Using a debt consolidation calculator, like this one from Wells Fargo, can help give you a good idea of whether or not debt consolidation really is going to be right for you.
Does Debt Consolidation Really Work
The short answer is yes and no. As explained above, debt consolidation will only work when you go about it in the right way. It will only work when you have the right goals. It will only work when you want to eliminate your debts and not just access more money.
Debt consolidation can be a stellar option for debt reduction. But you must remember to first research it and other options and treat it in the right way. Set a solid debt reduction goal and see if a debt consolidation plan makes sense alongside it.
Only when you do what is best for you, will debt consolidation really work. When you go about things in the right way, debt consolidation is one of the best methods of debt reduction that there is.