Debt Consolidation Terms

If you've been struggling with debt for awhile you may be in the position to consider taking out a debt consolidation loan or working with a professional company to have your debt consolidated for you. But what are the rules and guidelines regarding such a consolidation? What can you expect from the consolidation company? What rights will you have?

Laws vary from state to state governing consolidation companies just like many other businesses, but there are some basic guidelines that most of them follow when working with their clients:

Step One: Lay Out All Of Your Debt

In order for a debt consolidation company to work effectively for you, they are going to have to know exactly how much debt you have and they will require you to fill out a form which details who you owe money to and exactly how much each debt is. This information will be used not only to determine the extent of your debt and whether the company can work with you under their own guidelines, but it will also determine the amount of commission or payment that you can expect to be charged.

Step Two: Payments

Once the consolidation company has negotiated with your creditors to effect payment for your bills under consolidation, they will require a fee to get started. This fee will vary based on several factors that determine the complexity of your case including the number of lenders involved as well as the amounts. In addition to this initial payment, you may also be required to pay a small commission every month until the debt(s) are satisfied completely and your contract with the consolidation company ends.

Step Three: You Pay, They Pay

Debt consolidation makes life easy because you suddenly become responsible for a single check sent to the consolidation company in order to pay off all of your debts that are held with them. They then turn around and distribute that money to your creditors on a regular basis according to the agreement that was reached with them. You should have the right to oversight for the agreed upon payments to make sure they are being made in a timely manner.

In any case, once you sign up with a debt consolidation company, say good-bye to your credit cards because you won't be allowed to continue using them if they are a part of the consolidation process since their terms will be negotiated. Most consolidation services manage to eliminate debt in approximately five years or less, though your results will vary.

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