The concept of debt consolidation often confuse people unfamiliar with it. To clear the air, it’s important to start with the truth. The most obvious facts about debt consolidation are:

  • Your debts are consolidated into one sum.
  • You have only one bill to pay. 
  • You pay less in interest since you are not charged holding and management fees by your debtors.
  • You eliminate debtor harassment
  • You pay only what your budget calls for you to pay. 

These are, obviously, some very good reasons to do debt consolidation. However, even some in the know are misinformed by falsities related to debt consolidation.

You may have been told that:

  • You get away without paying all of your bill owed.
  • You don’t get charged interest on the remaining amount owed until fully paid.
  • You can continue to charge and pile up new debt
  • You can’t still go into bankruptcy if you don’t make your payments on your consolidated bill.
  • Your credit rating will magically improve once you have consolidated your debts. 
When people are offered the chance of getting debt consolidation, it is, probably, due to their having consulted a financial manager since they have become immersed in debt and are being threatened by their debtors. A financial counselor will contact all of their creditors and advise them of your situation and close your account. Once all of your debts have been consolidated, your income is taken into consideration and a budget is devised by the financial counselor. The payment made towards your consolidated bills will be dispersed to all of your creditors. You will have to learn financial management and work towards living within your means until you have paid off your obligations to your creditors. That means, that many of the luxuries that you might have become accustomed to will have to be put off again until you have paid off your bills to your creditors.
You will have to meet your payment to your consolidated bill to avoid bankruptcy or continued creditor harassment. Using debt consolidation is a legal manuever to avoid bankruptcy, to avoid creditor harassment and to learn to manage your income it is not a legal way to avoid paying your bills. Your consolidated creditors are each paid a portion of the payments that you make which is why they agree to allowing their debt from you to be joined to your other debtors. It is important to keep that information in mind when planning on debt consolidation, The facts are that people who have piled up more debt than they can afford to pay are poor money managers and have learned to amass more debt by taking credit offers that they don’t have the income to support. That method of getting into financial insolvency needs to be corrected if debt consolidation is to work.