Debt consolidation is a method some people pursue in order to eliminate their debt and to repair and reestablish their credit.
It is performed by a company and they work on behalf of their clients to reduce debts and reestablish credit by assisting the client with negotiating debt repayment terms with their creditors.
Debt consolidation companies offer a variety of ways to help people pay off their debts and reestablish their credit over a course of time.
There are a number of debt consolidation companies and many of them offer two main ways to assist people with paying off their debts and reestablishing their credit.
The first option is the debt consolidation program where all debts are lumped into one monthly payment.
The monthly payment is dispersed amongst the creditors.
This option is the most popular.
The average pay off time for all debts is usually three to five years.
As long as the client makes the single monthly payment on time each month he or she can gradually rebuild credit.
Each individual is assigned to a credit counselor who is responsible for managing and monitoring his or her account.
This credit counselor is responsible for reviewing all financial information such as the monthly budget and all debts that need to be resolved.
The counselor will contact the client's creditors and try to negotiate a monthly payment that fits within the budget of the individual.
The counselor will also monitor and manage the individual's payments.
With timely payments the client can expect to be debt free in about three to five years and will see an improvement in his or credit rating.
The second option available to assist people is the debt consolidation loan.
This is a loan that is taken out for the total amount of the debt that one would like to pay off.
Since the client is seeking this loan because he or she wants eliminate debt, most companies do require that the loan be secured.
A loan can be secured with an item such as a home.
The loan money received by the client is used to pay off all the debts on their credit report.
Thus, all the debts are paid as agreed.
The client will only have to worry about making one monthly payment to the debt consolidation company.
The one drawback to this option is that since the loan is secured with a large personal object, if the client stops paying the loan he or she could lose the object which secured the loan which in most cases is a home.
Also, failure to repay the loan will definitely ruin one's credit, thus defeating the purpose of getting the debt consolidation loan.
Debt consolidation is an option for those looking for a way to pay off all their debts in one lump sum payment each month and rebuild and repair credit over time.
Those seeking this option should be prepared to provide necessary financial information for their credit counselors to review.
In addition, people using this method to reduce debt and repair credit should monitor their accounts and make sure that the money paid each month is being distributed to the creditors properly.
Although the debt consolidation company is hired to manage the distribution of the money to creditors, it is ultimately the individual's responsibility to monitor and his or her account to ensure that payments are being made and one's credit is being repaired.