The phrase “debt consolidation” has erroneously become synonymous with being debt free. This has something to do with how this service is marketed in the media. But there are hurdles and pitfalls to look for. This article will show you how to find the best debt consolidation company.

The commercials are enticing: Eliminate debt (they just stop short of saying yesterday). Pay only a small potion of what you owe. Eliminate interest and penalties. And the list goes on. But just how true are they? More on How to Find Best Debt Consolidation Company for Your Needs

There are many debt consolidation nonprofit organizations which are out there on the Internet today. This article will first focus upon deciding how to look for a debt consolidation nonprofit organization and then give an example of an organization which you may want to work with.

If you type in the phrase debt consolidation within your search box on the Internet today, you will find tens of thousands of different companies you could work with. When you are thinking about a debt consolidation nonprofit organization which you would like to work with, you need to think about whether or not you are comfortable doing it over the computer or if you would like to meet someone face to face. More on Finding a Reputable Debt Consolidation Non Profit Organization

Many people reeling from the burden of debt ask the question, “Is debt consolidation a good thing?” Well, there is no straight yes or no answer as it depends on your situation and a few other things. There are a few things you should know when considering the debt consolidation route.

The biggest advantage of debt consolidation is that you might get lower interest rates especially for revolving credit such as credit cards. The word here is “might” as there is guarantee. But in most cases, the total interest for one bill will usually be lower than separate multiple credit accounts. More on Is Debt Consolidation a Good Thing?

Being in debt can be excruciatingly painful, both physically and psychologically. Many people often seek the help of a debt consolidator. But just how does debt consolidation work?

Loosely defined, debt consolidation is combining all your separate debts into a single one. Instead of having multiple bills with different due dates, you now have one large monthly bill. Good, right? Not so fast.

More on How Does Debt Consolidation Work?

There are various forms of debt consolidation, but basically two. Confused? Let me explain, and then we’ll go to the pros and cons of both types of debt consolidation.

The first form of debt consolidation is using one of various ways of borrowing money in order to pay down debts so you are left with one payment. This includes, for example;

1. Putting all your accounts into one new or existing credit card, hopefully with a lower interest rate. This option works best for those with good credit scores as they can get low interest, high-limit credit cards.

2. Obtaining a loan secured or unsecured, and then using the funds borrowed to pay off your debts. You now have one debt to deal with. People often use home equity lines of credit for this. Those with good credit scores can get an unsecured loan for this purpose. Such a loan  be called a debt consolidation loan.

The Pros of Debt Consolidation Loan

1. If you get a low interest rate, your monthly bill will be reduced, sometimes significantly.

2. You now only one payment to worry about as opposed to multiple with different due dates.

The Cons of Debt Consolidation Loans

1. Getting fair interest rates can be difficult and some lenders can result to trickery. You could get a low interest rate and then see it jump somewhere down the road. Obtaining a home equity line of credit has certain disadvantages and risks, subject of a different article.

2. False sense of safety: You may feel like you paid off your debts and are now debt-free, which is not really the case. You just have one big payment. This false sense of safety could lead you to start charging your credit cards again and you’re back to square one.

The second form of debt consolidation is the most common. It involves working with a debt consolidation company and/or a credit counselor.

Pros of Working with a Debt Consolidation Company

1. A good consolidation service or credit counselor will negotiate better terms on your behalf, including lower interest rates, with your creditors. This often reduces your total monthly amounts.

2. If you hit a bump or two down the road (don’t we all), the counselor or company will explain your situation to your creditors in a professional manner.

3. You now have only one payment to worry about.

The Cons of Working with a Debt Consolidation Company

1. If you get a bad or scam company you could find yourself in a worse plight than before. Some debt consolidation companies have been known to charge, often hidden, exorbitant fees. Others will take your money and not forward payments to your creditors.

2. You will be required to close most if not all your credit accounts. This will hurt your credit history and score. Additionally, you will be advised not to open new credit accounts for a period of time (typically about three years).

3. Some creditors view debt consolidation in the same light as a Chapter 13 bankruptcy, the difference being that debt consolidation does not stay on your report for up to 10 years.

A debt consolidation loan will rarely reduce the amount of money you owe. There will be new loans costs added to your balance. Your interest will also go up because you will be taking much longer to pay off the new loan. Consolidation borrowing almost always adds to your debt. In other words, you can’t borrow your way out of debt. In other words, you can’t borrow your way out of debt.

Let’s imagine your current bills total $10,000 and it will take five years to pay off a consolidation loan as a payment of $250 per month. With this loan structure, your new debt, with interest, equals $15,900.

The act of debt consolidation usually results in a somewhat lower monthly payment, but this payment must be made for a much longer period of time. For example, you could also consolidate that same $10,000 debt so that your payments would drop to half the $250 that we previously said. This would make your new payment only $132.50 per month.

Sounds great, doesn’t it?  Think about it, though. The term of the lower monthly payment will now be 12 years instead of five years. So, your true total debt will go up over $19,000.

Consolidation by a bank or finance company usually will not reduce your total cost in terms of time served to pay off your debt. These institutions almost always charge a higher interest rate because your risk of default or bankruptcy has increased since you made the original loans.

Debt consolidation is just another way of enslaving you in further debt. The lender is the one who benefits, not the borrower. Debt consolidation is done for three basic reasons:

1. It discourages bankruptcies
2. It gives the lender a chance to adjust the interest rate upward.
3. The lender has the opportunity to add collateral to the loan.

The only exception to debt consolidation is if you can get the interest on your total bill reduced. The debt would be paid off quicker because more of each payment will be going toward the principal and paying off the balance of your loan.

Again, you cannot borrow your way out of debt; you can only borrow your way deeper into debt.