Debt consolidation is one of the most widely used ways to tackle debt problems, but it is not the best answer in all situations.  It is important to understand how debt consolidation works and what the pros and cons are, so that you are able to decide whether it is likely to be the right option for you or not.

If you do decide that you would like to try debt consolidation, the most important decision you will need to make is which debt company you want to help you.  As there are a huge number to choose from, and not all of them are either effective or necessarily trustworthy, it is best to shop around and choose carefully.  You can help protect yourself by applying to about three different companies and then making a decision based on their proposals and how you feel about the people you have dealt with.

The best way to ensure you get reliable advice on your debt problems is to start with a list of recommendations for some of the best debt management companies, and apply to a few of them.  You can do this quickly and easily online, without any obligation to accept what they propose.  This is a good way to get an expert analysis of your situation and recommendations of the best way out of debt for your particular circumstances.

How Does Debt Consolidation Work?

Debt consolidation is a term used to mean more than one thing.  Some people use it to mean taking out a loan to pay off all your debts, leaving you with just one big loan to pay off, while others use it to mean consolidation of your debts through a debt management plan.

Borrowing more money to pay off debts is only the best solution in a very limited number of circumstances.  What often happens is that you just shift your debts from lots of companies to one company, which frequently takes longer to pay off, which costs you more money in the long run.  A much more successful way to consolidate your debts is by using a debt management plan.

With a debt management plan you use a specialist debt company to negotiate with your creditors in order to change the terms for paying back what you owe.  The idea of this is to get agreement to reduce your interest charges and other payments relating to your debts.  These changes result in the monthly cost of your debts going down.  Instead of paying all your creditors, you must make one, affordable monthly payment to the debt consolidation company, who then have to pass on payments to the creditors.

Pros and Cons of Debt Consolidation – The Pros

The main pros with debt consolidation are that your new monthly payment is less than the combined total that you were paying for your debts before and the single payment is much easier to deal with and makes it less likely that you will miss any payments.

In addition to this you have the added benefit of not having to deal with your creditors, who need to go through your debt management company instead.

Because this type of debt consolidation is not a legally binding agreement, you have the ability to leave the plan and do something else if your circumstances should change.

Debt management plans are a way of paying off your debts in full, so all your creditors are satisfied and fully repaid.

Pros and Cons of Debt Consolidation – The Cons

One of the disadvantages of a debt management plan is that it is not a legally binding agreement, so your creditors cannot be forced to participate.  However much you want to set up a plan, you cannot include any creditors who do not wish to be included.

You can only consolidate unsecured debts, so you would not be able to include any secured debts such as a mortgage.

You will only be deemed suitable for a debt management plan if you have a steady source of income that leaves you enough spare to make the regular payments, and if your debts are to a few different creditors.

Pros and Cons of Debt Consolidation –  Conclusions

The most effective way to consolidate debts is normally by using a debt management plan.  To be suitable for this solution you need to have substantial unsecured debts to a few different creditors, and enough money to keep up with regular repayments.  Take care to apply to a few different debt companies to ensure you get the best value.