How Debt Consolidation Works

This site provides general guidance and information. It is not intended as, nor should it be taken to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions. This site as an affiliate represents the following sites above and is not responsible for their content.

      After selecting a debt consolidation firm, the firm will get all of your debt and finance information. The firm then calls the creditors and negotiates on your behalf. These lower rates are pre-set by creditors. Usually, the firm can negotiate lower monthly payments, lower interest rates, and reduce or eliminate late fees. This allows you to pay one, lower bill and pay off your debt in 4-6 years instead of 15-30 years.

     In return for this service, you must agree to pay, on time, the agreed upon lower payment while meeting other living expenses. You must also agree to stop increasing your debt or using credit cards. When creditors know that you are working with debt consolidation, they quit harassing you. If they do call, a good firm will usually call them for you and explain the situation.

     Some debt firms charge a fee, built into your monthly payment, for their services. However, there are many non-profit, reputable firms that do not charge fees, or charge very small fees.

     Debt consolidation is often used broadly and a different term to understand it debt settlement. Debt settlement is when a company will take it on their behalf to do their best to actually remove a large portion of your debt. Often their reasoning with your creditors is that "this person" is in real financial difficulty and are potentially in danger of bankruptcy. If your creditor realizes that this is the case they understand that if you do indeed claim bankruptcy than they may not receive a dime from you. They will often then work with the debt relief company to lessen your debt to an amount you can afford.