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What’s the Deal? An Introduction to Debt Consolidation

Posted by Jonathan on Jul 15th, 2009

“Debt is like any other trap,” wrote classic humorist Henry Wheeler Shaw. “Easy enough to get into, but hard enough to get out of.”

Fortunately, even amidst the stress and frustration common to combating mounting bills, interest, and late fees, sound financial options remain for consumers looking to become debt free once again.

Despite widespread misperceptions and misgivings about the process of consolidating debt, millions who have teetered on the brink of bankruptcy have found a consolidation plan to establish a workable budget enabling them to meet debt-free goals they might not otherwise have been capable of reaching.

So, What Exactly is Debt Consolidation?

Essentially, debt consolidation is the replacement of multiple loans with a single loan, typically with a lower monthly payment and a longer repayment period. Consolidation loans (commonly pursued after some form of credit counseling) are tailored to individuals or families struggling to manage:

Credit card debt
Personal loan debt
Mortgage debt
Student loans or other forms of consumer debt

Anyone researching debt consolidation will swiftly discover that there is no shortage of companies that specialize in the practice of helping people eliminate unmanageable bills, penalties and fees accrued on unpaid or past-due bills.

Those who have successfully completed debt consolidation programs usually report some degree of surprise in how easily such a plan was formulated and tailored to their individual needs. On the other hand, finding a quality, legitimate company to handle debt consolidation can be a completely different and more complicated experience altogether.

Even at a time when you likely have no other immediate concerns than just surviving your current financial predicament, it should still remain a high priority to investigate any company with whom you consider doing business as there is equally no shortage of questionable organizations that virtually stalk individuals with financial problems who may already be too overwhelmed to consider yet another threat to their fiscal well being.

What Are the Warning Signs?

Consolidation companies should carefully review your financial history and other available payment options, not immediately offer a standardized payment plan requiring signatures and sensitive personal information.

Loan consolidation services don’t come free of charge, but any company that offers excessive upfront frees should not be considered worthy of your business. The standard introductory or administration fee typically runs the cost of a nice dinner for two. Any fee even modestly above that range should raise a red flag.

If a consolidation company won’t reveal in writing their standard practices and licenses, something is not right.

Predatory lending and untrustworthy financial advisors remain widespread across the global landscape. For this reason, it is essential to ask the right questions from the start.

For example:

Does your debt consolidation company have adequate insurance to protect you from their errors in judgment or if one of their employees commits fraudulent activities that prove harmful to you?

Is your business a non-profit organization?

Do all representatives of your company hold any required licenses and meet all governmental guidelines?

At the end of the day, however, it is just as important for the debtor as it is the creditor to take accountability and responsibility. Anyone seeking financial freedom from debt has to thoughtfully choose a repayment course most appropriate for his or her unique situation. And, fortunately for many, debt consolidation can be a sound move, especially if there is little chance of clearing your debt in any other timely or cost-effective way.

This article was written by Jonathan over at Debt Loans, the Aussie Personal Finance Blog. Check us out for all sorts of other financial info!