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Debt Consolidators – Finding The Best Debt Help
Before looking at how to find the best debt consolidators, I think it is worth taking a moment to make sure we understand what debt consolidation is and how it works. There is more than one way to consolidate debt, and by having an understanding of what is involved, you will be in a better position to decide if it is the right thing for you, and what sort of company you need to look for.
What Do Debt Consolidators Do?
Most people have an understanding that when debts are consolidated they are brought together in some way, so that you only have one payment to think about afterwards. This is true, but there is more than one way that this can happen. One meaning of the term debt consolidation is the option of taking out a big loan to pay off all your old debts. This leaves you with only one debt and one monthly payment to find. The payment is usually less than the sum of your old debts, so you are paying out a smaller amount each month.
However, there is a possible downside to this which you need to be aware of. Many people who go for this option end up paying less each month, but much more in the long run. The reason your monthly payments come down is that the new loan you take out usually goes on for much longer than your debts would have. If you add up how much you will have repaid by the time you finish repaying the loan, you will often find that it has cost you far more than your original debts would have.
There are a few situations where a new loan can be the best solution, but these tend to be in the minority. Many people go down this route because it is the only one they are aware of, or because they respond to an advert, but for the majority they would have been better off using the other solution offered by consolidators, the debt management plan.
Using A Debt Management Plan (DMP)
The main solution offered by UK debt companies are structured payment plans which do not involve any new borrowing. This in itself is a positive thing because they last thing you should be doing when you have debts is taking on new debt. The beauty of a DMP is that they are all about stopping your debts getting any bigger and beginning to repay them straight away. This is what you need when you have financial problems.
What happens is that an advisor from the consolidator will have talks with all of your creditors to see if they can change the arrangements you have for repaying the money owed. The general thrust of these negotiations is to stop your debts growing any further, but freezing or reducing interest charges and bringing down your overall debt if possible by getting any penalty charges dropped or reduced. When these new arrangements are agreed and in place, the overall amount that you need to find each month will be less. You then make a single payment to the consolidator, and they then have to share this out in the agreed way with your creditors.
The result for you is less money to find and a much simpler payment system to keep track of. An added benefit is that your creditors get paid by the consolidator, so they should no longer be coming to you to demand payment.
What If Debt Consolidators Cannot Help Me?
The main things you need for a DMP to work are unsecured debts to a few different creditors and a source of income. The exact requirements will vary a little between companies, but in general your debts will need to be to at least two or three different creditors and they must be for unsecured debts, which includes things like personal loans, credit cards, store cards, etc, but not mortgages. You also need a source of income that is sufficient to leave you a reasonable amount spare after covering your essential household costs, so that you can make a payment into the DMP each month.
If you have very large debts and an income that does not leave you a realistic amount over to cover a payment plan, you may need to consider one of the options set up for more serious situations. In the UK, any good debt consolidator will also be able to offer an individual voluntary arrangement, or IVA. This is an alternative to bankruptcy that allows you to pay a certain amount back to your creditors, and then write off the amount you cannot afford to repay. For US residents, the nearest equivalent to this is debt settlement, which also involves getting agreements to write off a large part of your debts.
Where To Go For Help – Finding Good Debt Consolidators
I cannot stress too much how important it is to be careful about where you go for help with debt problems. The fact is that increases in consumer debt problems have brought out many organisations intent on making money by exploiting people in difficulty. If you do not choose with care you could end up being advised to take a course of action that is not the best one for you, and which could result in you ending up in more debt, or taking far longer to get rid of your debts than is necessary.
The first precaution you should follow is to apply to more than one company before making any decisions. This can be done very easily as all the leading organisations have simple online forms. The other important step in ruling out suspect companies is to only apply to consolidators known to be reputable and with a long track record of successfully helping people just like you. You simply complete an application form and an advisor then contacts you by telephone to get some further information. They then analyse your situation and make recommendations for your best route out of debt.
You can find a list of some of the most reputable debt consolidators in the UK and US on the main debt management page of this site. Alternatively, UK residents can use the online form at the bottom of this page to seek debt help from our preferred consolidator, 123 Debt Solutions.
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