Debt consolidation allows for a consumer to gather high interest consumer debt accounts, usually credit cards, into a single account with a lower overall interest payment. Instead of paying bills separately a single monthly payment is made to the administrator of the consolidation who then makes payments to the creditors on the account. In theory, if the consumer is paying less in interest after the consolidation a greater portion of the monthly payment can be directed toward the paying down the collective debt on the credit cards that were consolidated. Normally, the money left over after paying the interest charges is directed toward the accounts with the highest interest rates to pay them off first. The progression then targets the next highest rate until each account is paid.
 

The timeline to eliminating the consolidated debt is determined by the difference in interest charges between the credit cards on their own and the interest rate of the consolidation. The greater the difference in interest rates the faster the principle can be addressed and reduced. Another influence on the timeline is the consumer’s ability to make consistent payments of the agreed upon amount for the life of the consolidation. Inconsistency of payments and amounts can extend the timeline of a debt consolidation far beyond its original schedule.

One of the factors in debt consolidation’s initial rise in popularity was that the unsecured credit lines that were going to be consolidated were typically rolled into another unsecured line of credit. As the issuance of consumer credit has been restricted over the last eighteen to twenty four months, getting an unsecured line of credit for anything has been difficult, even for consumers with impeccable credit scores. Considering the nature of debt consolidations, getting unsecured debt is nearly impossible. Without access to unsecured lines of credit, the collateral used in this type of debt relief now is most often the consumer’s equity in their home which greatly increases risk in the transaction for the consumer.

The risk in the transaction comes from the fact that the unsecured debt in the form of credit cards and consumer debt has been transferred into secured debt collateralized by the consumer’s home. With the home now standing behind the consumer debt the lender now has an asset to go after, by foreclosing on the home, should the consumer fall behind or default on his payments.

Another strike against debt consolidations in their current format is that despite putting on so much additional risk, a debt consolidation will never reduce principal owed and, because of the fees involved, may only result in a slight drop in the monthly payment amount.

There are many forms of debt relief available to today’s consumers, but getting optimal results requires the knowledge and experience you’ll find at Debt Settle, Inc to determine the best path for your set of circumstances. Call us today at (866) 985 7388 to get on the right track today.