There are many complicated details when it comes to debt, but for those in a tough situation, the first order of business is lowering your monthly payment by any means. This is where debt consolidation can be a good option, and before moving ahead with it, there are a few key things you need to know.
The first thing to point out is the difference between debt settlement companies and a debt consolidation loan. A debt consolidation loan is simply a new loan with different terms than your credit cards that could end up more favorable to you, depending on a number of factors including your credit score.
On the other hand, a debt settlement company works with you to make a deal that eliminates your debts altogether. The way it works is you save your money up for a few months in an account with the debt settlement company. When there is a decent amount saved, the company uses their contacts and expertise to contact your creditors and offers to make a deal for some percentage of the amount you owe. Often times, it can end up being 50% or less of the actual balance you owe. After the creditor accepts the settlement, you are free of that debt. The debt settlement companies charge fees at various stages of the deal, so it is important to shop around for the best one.
There are several good options when you make the decision to eliminate debts. Understanding yourself, your habits, and your goals is important in deciding how to choose the best path. Once that first step is made towards freedom from debt, you are well on your way to improving your life.