Advantages and Disadvantages Of a Debt Consolidator

A debt consolidator is a company or lender who assist you with the consolidation of debt. This may be a company that offers you a special debt consolidation loan, or a loan originator who simply facilitates the arrangement of a consolidation loan. Some consumer credit counseling agencies even perform the services of a debt consolidator, helping you to consolidate debt to better deal with your outstanding balances. 

Understanding Debt Consolidation

Debt consolidation may seem complicated, but in reality it is very simple. Consolidating just means taking many things and making them one- and this is exactly how debt consolidation works. If you have several different debts spread across different credit cards, for example, consolidation will involve combining all of those different debts into one big debt. 

The way this is done is using a debt consolidation loan. A new loan is given to you, and you use the proceeds to pay off all of your existing debts. For example, if you had 4 credit cards and owed $1000 on each, you could take a $4000 debt consolidation loan. The lender offering you the new loan would issue payment for $4000 (either directly to you, or to your creditors). The old debts would thus be paid off and you'd have one new loan.

Typically, when you opt for a debt consolidation loan, you do so because:

• You are offered a lower interest rate on the debt consolidation loan. If your credit cards were at 23 percent interest, maybe your new loan will only be at 10 percent. This can lower your monthly payment significantly and also allow you to pay less
• You are offered a longer repayment period. If you have a loan that only gives you a year to repay it, your monthly payments will be calculated to allow it to be paid in full within that year. If you take a new consolidation loan that allows you two years to repay it, your monthly payments will drop- although by stretching things out, you pay more over the long run.

In general, this means that debt consolidation loans are taken because they provide better terms, in some manner or another, to the borrower. Debt consolidation loans can come in the form of a special consolidation loan, but you can also achieve the same effect by taking a credit card balance transfer, a second mortgage on your house, or a personal loan at the bank.

Getting Help

If you are struggling with debt, a meeting with a debt consolidator may be a good option for you. A debt settlement attorney, however, can also provide you with many of the same services that a debt consolidator can. A debt settlement lawyer can help you explore all of your options for dealing with your debts, and is ethically bound to provide you with professional service and to put your needs first.