Pros and cons of consolidating debt

22 Oct

Many people see debt settlement –an option that advertises to help you pay off your debt for much less than what you owe– as a way out of their financial woes.

However, the truth isn’t quite as simple as all that.

One option you have when you begin tackling your student loan debt is to explore loan consolidation.

But before you head down that road, here’s what you should know.

If, like many college graduates, you have multiple student loans, you’ve probably heard the term “student loan consolidation” thrown around more than once when talking about repayment options.

Simply put, this is the process of combining your multiple student loans into a single, bigger loan, possibly with a new lender.

But if you switched majors, transferred colleges, or went on to graduate school, you may be among the 19% that owe ,000 and above, or the 5.6% who owe more than 0,000.

Chances are if you’re dealing with student loan debt, you’re not just dealing with one loan. And if you couldn’t cover the costs with federal loans, you very well may have turned to a private lender, such as a bank or other lending institution (e.g., Sallie Mae) to fund the rest of your expenses.

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Pro #3 — If you've had past credit problems, creditors are likely to hassle you less if you're working with a debt consolidation firm.

The bottom line is this: with a debt management approach, you pay off all of your debt with reduced interest rates, and a guarantee of being debt free in 3 to 5 years.

With debt settlement, you work with an attorney to negotiate a lower debt, while making monthly payments to accumulate a pay-off amount.

Sometimes these companies misleadingly advertise their services as a way to consolidate debt — or “debt consolidation,” — but make no bones about it, this is not a When you hire a debt settlement company you are hiring them to negotiate with your lenders on your behalf.

Their job is to negotiate a new, much lower amount for you to pay on the account.