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Using A Debt Consolidation Service |
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Submitted by Cheryl Adams
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If you find yourself in bad debt, then you might be considering enroling in a program for debt counselling. There are companies that offer this type of service as part of their debt consolidation work. In order to determine if these services are the best option for your situation, it is important that you understand what they are and how they work. The form of debt consolidation that is used most often is the debt consolidation loan. These loans are used to replace the numerous loans and debts that consumers have accumulated by giving the client a large sum of money from which the outstanding amounts can be paid off. Once the loan has been used to pay off unsecured debts, the client begins to pay back the loan itself.
Debt consolidation services operate by making the payment to the myraid creditors on your behalf out of the loan that they give you. Instead of multiple monthly payments, you will only have to pay one bill to one company. The service will usually find a payment plan that best suits your needs, whether it is monthly, weekly, or over a fortnight period. The loan means that you will have a lower monthly payment and a longer time period in which to repay it.
Where a lot of problem with debt occurs is when people are being paid monthly and they find that they simply do not have enough money at the end of the month. A loan can help mitigate this problem as it can be paid on a weekly basis. The length of the repayment term can also be negotiated with the service and can be from one year up to several years. Although monthly payment installmenst will be lower the longer the period is, it is important to remember that the accrued interest each year may mean that you end up paying more than you would have without a loan or with higher payments.
Often the businesses that offer consumer debt counseling and consolidation services will ask if the client would prefer a variable interest rate or a fixed interest rate. Variable rates mean that the client will be able to make extra payments at any time without incurring any penalties. Most people will go for this option as it offers a chance to pay out from under the debt sooner and people find that they can find teh money to do so. Fixed rates, on the other hand, mean that if you want to pay off the debt early you may be penalized by the company. Obviously, the best option for most people is the variable rate option, under which they can determine how quickly their debt is paid off, lahtough the interest rates incurred may be higher.
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