Loan Consolidation Programs

When debt spirals beyond your control, it’s natural to look for ways to pay off your balances faster. Loan consolidation programs may come under fire for doing little to decrease the overall debt, but these programs are valuable tools you can use. Before you sign up with any program, it’s smart to learn the about the different types of consolidation programs and what each entails.

What consolidation does not do for you

A loan consolidation program is not a magic financial pill that will erase all your debt in the blink of an eye. If any loan counselor or lender tells you they can do this, run. Although your debt payments will combine into a single monthly payment, your total balance usually stays the same. Your consolidation will also not remove negative information reported about you from your credit report.

How bank consolidation programs work

Applying for a loan consolidation through your bank is the same simple process as it is to apply for any loan. Essentially, you’re looking for one loan to pay off all your existing balances. If your credit history and income is sufficient for your bank’s underwriting guidelines, you might be able to use an unsecured personal loan for your consolidation. Sometimes, using the equity in your home or securing the loan with your car is a better option.

Regardless of which bank loan option you choose, your lender will request current statements for each debt included in the loan. After loan closing, your banker prepares checks for each of your creditors and sends them on your behalf to repay the loans.

How debt management plans work

If you go through a credit repair service or a credit counseling agency, they may not have a loan consolidation program. Instead, they contact each of your creditors to negotiate lower interest rates, fees and payments on your behalf. Once they complete negotiations, you receive a total of what you owe them each month. After you pay into your debt management plan, the agency disburses payments to each creditor and keeps a small percentage as their fee. Qualifying for a debt management plan usually does not require a credit check, making it a viable option for individuals with bad credit.

A loan consolidation program through either a lender or a credit counselor can lower your payments to a manageable level, making it possible for you to pay more towards your credit obligations each month than you could before the consolidation.

http://www.superpages.com/supertips/loans-consolidation.html