Is Debt Consolidation Effective in Debt Settlement?

Debt consolidation is a process of settling your debt. Although very popular, most people ask if it is an effective method even for people who are already swimming in debt.

The straightforward answer to this is NO. Usually, opting for debt consolidation does not decrease the total amount of debt you owe. What it simply does is to combine all your debts and allow you a way to make monthly payments that will settle a portion of all your dues. Your payment goes to an agent or debt consolidator who will normally charge a significant fee for the service they are providing of getting your monthly payments and making sure that every creditor is paid on time with the sufficient amount.

In the past years, there have been plenty of scams associated with debt consolidation that have taken away millions of dollars from individuals who paid their dues and later realized that their money never reached the creditors or were handed in late that is why penalties and high interest rates were charged. This led them to suffer a worse condition compared to where they started.

There are also loans for debt consolidation that are charged with high interest rates for those who do not have sufficient cash to settle their bills each month. This is an even worse option in many cases. The reason for this is that the loan will most unlikely cover all of your debts which means that you still owe a lot to your creditors and you have another loan to a new creditor. When you carefully analyze this, you have a higher total debt than the time you started with the consolidation.

Debt consolidation and loans may just lengthen and worsen your existing debt. Oftentimes, they do not get people out of their debt situation.

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