Debt Consolidations – What is Debt Consolidation?
Debt consolidation is essentially a financial product which sees an individual taking out a single large loan with a debt consolidator in order to pay off multiple smaller loans and out standing sources of personal debt.
The advantage of such a debt consolidation loan is that the individual is now left with only one creditor to deal with and usually only needing to pay a single repayment each month. In some cases there may also be a cost saving, where small payday loans to be paid off had a higher rate of interest levied upon them than that of the consolidation loan.
In addition to the issuing of a debt consolidation loan, debt consolidators also offer a variety of other services which often include negotiating with existing creditors on the behalf of the client. This may be seen as another key benefit of the debt consolidation service, as the client is able to benefit from the expert negotiation skills of the debt consolidator.
Consolidation Loans – How Debt Consolidators Make a Profit
Whilst debt consolidation represents one possible debt management solution, there is a cost associated with the services of debt consolidators and debt consolidation loans.
In essence, a debt consolidator makes the bulk of its profit from the sale of large loans to the individual using the services of the debt consolidation company. As a sub-prime form of debt, consolidation loans have a higher interest charge than many other prime sources of debt. As such, in using the services of a debt consolidator one should consider carefully whether or not the loans offered represent value for money.
In summary, debt consolidators offer a valuable service which may allow an individual to roll a large number of debts owed to multiple creditors into a single consolidation loan. Whilst debt consolidations may be seen as a convenient solution, the downside is that the costs associated with debt consolidators may make the issue of a consolidation loan an expensive option for debt management.