A debt consolidation
program is an action that you can take to bundle together all your debts and to make serious efforts to pay them off. Unlike a debt consolidation loan, a program doesn’t involve taking out a new loan to repay your existing borrowings. Here, you (or a debt consolidation company that you work with) aim to pay off your debts with a single regular payment every month until they are repaid in full.
The big advantage to this kind of program is that you can often arrange to have your creditors freeze or reduce your debts/interest charges during the course of your program. This can put a halt to the problems you may be having with debt growth and can also help keep creditors off your back whilst you try to pay back what you owe. So, you get some breathing space and are allowed to repay what you can afford to every month, making it easier for you to get your finances in order again.
How it works…..
You can set up your own debt consolidation program if you wish but most people will choose to use a specialist service to do this for them. Dealing with creditors can be complicated if you don’t know what you’re doing and many of them will be more willing to agree to this kind of program through a service that they already know rather than through an individual.
If you choose to use a debt management program
run by a specialist then they will talk you through your financial situation to assess your debts as a whole and your incomings/outgoings. They will then help you work out a budget to see how much you can actually afford to put aside to repay your borrowings on a monthly basis.
The company will then approach your creditors and ask them to agree to the program. They will also usually try to have your debts frozen and to have interest rates cut or halted. They may also be able to negotiate the writing off of some debts in the process in certain cases. If all goes well here then you pay them the agreed monthly fee every month and they then distribute it around your creditors as payment towards what you owe.
How much does it cost?
If you do this for yourself or use a free advisory service to set this up for you then you won’t be charged anything for this kind of program. The Consumer Credit Counselling Service (www.cccs.co.uk
), for example, offers this kind of service at no cost to consumers.
If you choose to go with a commercial company then there will be fees involved. This will usually involve a set up fee and a percentage payment every month to cover the company’s administration costs. Costs and the services on offer here will vary so if you do opt to use a commercial specialist then do check out your options before you choose the one to use.
This kind of program can be a good way of informally dealing with your debts. Creditors are usually quite open to agreeing to this route on the basis that getting some money back on a regular basis is worth more to them than having you default on your commitments. So, if you are struggling to repay everything that you owe then this may be worth looking into as a solution.