Find out which debt you can consolidate
As you can probably guess, a debt consolidation loan won’t cover all of your bills. Debt consolidation should only be used to pay off real debt, meaning a lump sum that you owe and are trying to pay off.
If you have several large bills that you are trying to pay off, debt consolidation can help. Debt consolidation can’t help you pay your cell phone bill or your rent, but it can make it easier for you to pay those by bringing down your monthly debt payments.
Medical bills
Medical bills can be very expensive. Generally, if you can manage to make regular payments, some health care providers will charge a low interest rate. However, if you take too long to pay off a medical bill, it will be turned over to collections. Some health care providers will turn bills over to collections after only three or four billing cycles.
Bills in collections
The longer the bill stays in collections, the worse an effect it will have on your credit score. If you make an agreement with a collections agency and you default on it, the agency can garnish your wages. Not only does that mean the agency can take money directly out of your paycheck, this will probably end up costing you quadruple the amount of the original bill.
If you are in danger of defaulting on an agreement with a collection agency, debt consolidation can protect your credit score, save your paychecks and keep those harassing creditors off your back.
Credit card bills
If you have a high amount of credit card debt, you are a good candidate for debt consolidation. Most debt consolidation loans will carry a lower interest rate than credit cards. If you have several credit cards, you can get them rolled into one loan with debt consolidation.
But once you get debt consolidation, you must make sure that you avoid acquiring new debt. If you secure a debt consolidation loan that has a lower interest rate than your credit cards and get them all paid off, don’t turn around and start using credit cards again.
Catch up
To read the introduction to debt consolidation, check out Debt Consolidation Part 1. To read up on the benefits of debt consolidation, check out Debt Consolidation Part 2.
In this economic environment, is it reasonable that someone with debt problems would qualify for a loan?
Elizabeth, nice article. I just wanted to quickly mention how people who are looking to save money off their cell phone can do so (since, as you mention, debt consolidation cannot help them). Not that I mean to blatantly plug, but I work for the consumer advocacy website, powered by a company called Validas, where we slash the average cell bill by 22 percent. It costs five bucks to implement our suggested changes to your plan (the average consumer currently saves around $450 annually through us) but we will analyze your bill for free without any commitment of purchase, just to let you know exactly how many dollars your carrier is ripping you off by. I could go on and on about how shifty these cell companies can be in their attempts to make you overpay. We stop them, and have currently put over $5,000,000 back in the pockets of consumers. You can check out Validas’s fix my cell bill in the national news media, most recently on Good Morning America at http://www.abcnews.go.com/GMA/story?id=6887412&page=1.
Good luck to everyone trying to save in this tough economy.
Dylan