Debt consolidation means taking out a new loan to pay off a number of liabilities and consumer debts, generally unsecured ones.
In effect, multiple debts are combined into a single, larger piece of debt, usually with more favorable pay-off terms: a lower interest rate, lower monthly payment or both.
However, there are specific instruments called debt consolidation loans, offered by creditors as part of a plan to borrowers who have difficulty managing the number or size of their outstanding debts.
Creditors are willing to do this for several reasons – one of them being that it maximizes the likelihood of collecting from a debtor.
Home equity loans or home equity lines of credit are another form of consolidation sought by some people, as the interest on this type of loan is deductible for borrowers taxpayers who itemize their deductions.Basically, the DMP plays policeman, taking your monthly lump-sum payment and distributing it to your creditors until the accounts stand at zero. According to Greenberg, less than 35 percent of the people who call consumer credit counseling agencies truly can benefit from a DMP. This is a numbers fudging claim that holds true only in the narrowest of circumstances.For instance, if you miss two 0 payments on a ,000 balance, the third month's bill will make it 0 that you owe.When Norm Bour was 24, credit was so hard to come by he couldn't get a gas station company credit card without begging.While it's important for you to get a handle on your debt, how you go about it is just as important.