Using a Company to Help You Reduce Debt

A debt reduction company is a company that provides debt reduction services. These can include debt consolidation and reduction packages and loans, and sometimes consultation services and advice.

What Are Consolidation Loans?

A consolidation loan concentrates a number of different loans into one single loan. For example, if you are paying off several credit cards or store cards, and several personal loans, many debt reduction companies offer to buy all the various debts and consolidate them into one loan. You would then be paying just one monthly repayment, instead of several payments.

This can often mean saving money in lower interest rates. Credit cards and especially store cards usually have very high interest rates and if you have to pay off just one monthly instalment, the total amount of interest will be less than with many different payments.

Secured and Unsecured Loans

There are two types of consolidation loans; secured and unsecured. Secured includes home equity loans, which mean that you will be lending money against the available equity in your home. For secured loans you generally have to have a good credit rating and a lot of available equity. Interest rates are usually lower than with unsecured loans but there is a severe risk involved. If you cannot meet the monthly payments, you risk losing your home.

Unsecured loans come with higher interest, but there is no need to secure the loan against your home. Sometimes these packages are offered to customers with less than perfect credit ratings or even individuals with a poor credit record. Because companies take a risk when lending money to a person with bad credit history, the interest is higher than with secured consolidation loans and there may additional fees, such as early payment penalties.

Tips for Customers

If you have a lot of personal debt, and are struggling with the repayments, you may have considered approaching a debt reduction company. You might even have received offers in the post from various companies. Some of the offers can be very tempting, but always read the small print and make sure you understand all the parts of the agreement.

A consolidation loan does not mean that you suddenly become debt-free. It simply means that instead of paying off lots of different independent debts to various companies, you will now pay just one monthly payment. You have to be sure that you can afford the repayments before signing a deal for a consolidation loan.

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