Debt Consolidation

Debt Consolidation:
The process of consolidating multiple debt payments into a single payment. Debt consolidation comes in multiple forms such as debt management / credit counseling, home mortgage refinancing, and personal loans.
Credit Counseling Method:
The debt management / credit counseling method of consolidation is an agreement between a debtor and a credit counseling agency to repay the principal debt amount in full over a specified period of time (typically 36-60 months). This process is also commonly referred to as a debt management plan (DMP). DMP’s combine a number of unsecured debts into one low monthly payment made directly to the agency that then disperses payment to the individual creditors. After approximately three consistent, timely, payments, most creditors typically grant benefits such as waived fees, reduced interest rates and the re-aging of accounts to debtors on a DMP. Creditor concessions allow for a greater portion of the monthly payment to pay off the principal debt amount. As a result, DMP clients are generally able to get out of debt faster than they could on their own, while paying out less money overall.
Form Of Loan:
Debt consolidation can also come in the form of a loan. These loans are used to pay off multiple debts. This kind of consolidation is usually undertaken to secure a lower and/or fixed interest rate in addition to the ease and convenience of a single payment. Loans involved in the debt consolidation process are typically taken out against a secured asset such as house but can also come in the form of an unsecured personal loan. Debt consolidation through home mortgage refinance carries the risk of foreclosure if the debtor cannot keep pace with the new payment once the debts have been consolidated.

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