There are a number of ways to consolidate debt. If you are a home owner the best way is to use the equity in your home by obtaining a home equity loan. The proceeds of the loan are used to pay off your debts so that you are left making one payment on the equity loan usually at a much lower interest rate. With the current economic crisis, unless you have very excellent credit, it has become much more hard to obtain equity loans.
If you are unable to borrow against a house to consolidate your debts there are many debt consolidation companies offering help. When you sign up with one of these companies, they develop a plot to pay off your unsecured debts over a certain period. They get your creditors to agree with the plot. Often the creditors will agree to remove late fees, reduce interest and sometimes even reduce the principle. They do this because they have a better chance of getting paid if they go along. Also, the creditors will stop their collection efforts with the debtor and deal directly with the debt consolidation company, which means the debtor will have relief from collection letters and calls.
The result of the debt consolidation plot is that the debtor pays one monthly payment to the debt consolidation company, which is lower than all of the payments the debtor was making to the creditors separately. The debt consolidation company pays the creditors from this monthly payment plus it takes a fee for its services. The debtor must make the monthly payments on time each month. If there is a default on the agreement the debts may be restored to the full amounts and collection efforts may start. If the debtor is able to stick to the plot the end result is that the debts are paid off early and the debtors credit report and score are much improved.
If you choose to use a debt consolidation company make sure you do your home work. Check out several debt consolidation companies and pick one that is right for you. Usually it takes several years to pay off your debts through one of these plans and the companies charge fees for their services. Over the years these fees will add up to thousands of dollars. Be sure you know the plot and look for hidden fees. Often the debtor will not even know how much he/she is paying for the service. If you do your homework and pick a excellent plot you will have excellent results.
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