FAQs about Debt Consolidation
Why should I consolidate by bills? Consolidating your bills may help you lower your monthly payments, finance charges, and interest rates. It can free up extra cash to help you pay your monthly expenses.
What type of debt can I consolidate? Usually, you're limited to consolidating unsecured debt. That means any debt that isn't attached to property. For example, you can consolidate credit card debt, personal loans, and student loans.
Is there more than one kind of debt consolidation? Yes. There are basically two types. The first is a debt consolidation loan. The second is a debt management program.
What is a debt consolidation loan? If you choose a consolidation loan, you're actually borrowing money to pay off debt. If you're a homeowner, you can get a home equity loan that is secured by your house. If you don't have property, you may be eligible for a personal loan. Instead of paying many creditors, you'll pay only one - usually at a lower interest rate.
What is debt management? A debt management program doesn't require that you borrow money. Instead, a credit counselor will work with your lenders to help you lower finance charges and future interest rates. You'll pay the debt management company and they'll evenly distribute the money to your creditors. You won't be borrowing money; you'll be reorganizing your bills.
Should I choose a loan or debt management? If your credit is currently in good standing, it will be better for you to choose a loan. If your credit is blemished, debt management may be better. With bad credit, you're less likely to be approved for a loan.
How will debt consolidation affect my credit? A consolidation loan can help improve your credit if you make payments on time. Debt management programs will often appear on your credit report - and some lenders consider it to be unfavorable. However, if your credit is already less than perfect, debt management looks more favorable than non-payment.