Debt Consolidation Programs

Debts are terrible! You have student loan payments, credit cards, car loans, and your minimum monthly payments that all need to be paid off. When you’ve got debt that you can barely keep track of, debt consolidation programs might get you the relief you need. But there are some people who are not interested in debt consolidation programs. You should know why and prepare yourself when you sign up for the program. 

There are different factors you need to take into consideration when planning to either consolidate your bad credit loans. Debt consolidation for bad credit is one way of getting rid of your student loan debts, and the process is simple. The purpose of this article is to help you understand what debt consolidation programs are, everything concerning debt consolidation, and what exactly they mean when they say, “Debt consolidation does not mean debt elimination.”  

If you are ready, let’s go.

Debt Consolidation Programs: What Are They?

A debt consolidation program is a service that involves a formal plan to restructure and pay your loans by combining multiple loans into a single payment. In most instances, the program involves non-profit organizations that manage your plan and negotiate in your stead with your creditors. The negotiations can include low-interest rates, fees, and waived penalties. After the agreement, you make a single payment every month to the organization. They will dispense the funds to your creditor.

In a debt consolidation program, you receive the tools that help you get a loan repayment strategy, which will help you manage any existing debts. The primary goal of the debt consolidation program is to help you eliminate your debt and save money.

What Is The Difference Between A Debt Consolidation Program and Debt Consolidation Loans?

The two terms are often interchanged and confused. Debt consolidation loans help you combine all multiple debts from high-interest loans, credit cards, and other bills into a monthly payment. It lowers your interest rate, which can help you save money, reduce your monthly payment, and pay your debts quicker.

Debt consolidation programs negotiate fees, pay your debt, and lower your interest rates. Another difference is that the debt consolidation programs involve a credit counseling agency, and financial education to ensure you are empowered to make the right decisions to stabilize your financial health after you finish paying off your bad credit loans. 

However, aside from their differences, there are a number of similarities they share. Debt consolidation loans and debt consolidation programs make a monthly payment instead of making multiple payments. Apart from that, there is a possibility of a lower monthly payment than your previous loan payments.

If you are not sure which one is the best for you, consider credit counseling. The credit counselors have accredited professionals who are well versed in these programs. They will help you understand any small details by answering your financial questions. They’ll offer professional advice and make a recommendation based on the information you give them.

Debt Consolidation Loans

Pros:

  • Pays off old debt
  • Get a low-interest rate on your debt
  • Establish monthly payment and timeline

Cons:

  • You need to qualify for a loan
  • The loan may not cover your entire debt
  • Possible high-interest rate

Debt Consolidation Programs

Pros:

  • Possible reduced fees on loan and low-interest rate
  • Pays all debt
  • Affordable monthly payments
  • Free debt counseling and credit
  • Clears debt in five years or less
  • Few qualifications needed

Cons:

  • Can’t consolidate secured debts
  • You can save money by paying off debts less than $1,000 on your own

Debts That Can Be Consolidated Using Debt Consolidation Programs

Debt consolidation programs are meant to help you with your unsecured debts. Unsecured debts are debts that are not secured by collateral, that is, a car or a house. The common unsecured debt resolved through the program is credit card debt. 

However, you can address all types of unsecured debt through debt consolidation. Unsecured debts that can be resolved through the program include debt in collections, past medical bills, payday or personal loans, and repossessions.

Car loans, mortgages, and home equity lines of credits are secured debts, and as such, can’t be addressed in the debt consolidation programs.

Will Debt Consolidation Programs Hurt Your Credit Score?

Participating in the program to consolidate your debt will not affect your credit score. But your creditors may make a short note on your credit report. The idea behind it is that, if you attempt to repay your debt, it will inform other creditors and stop them from issuing new accounts, loans, or lines of credit that may reduce your efforts.  You must remove this notation if you complete your program.

A Debt Consolidation Program Does Not Mean Debt Elimination

Debt consolidation programs do not eliminate your debt. You are only restructuring your debt. Most of the time, when people consolidate their debts, they go into debt again. Why? They don’t have a good plan to spend less. 

This is primarily due to not developing good spending habits to help stay out of debt. So, the chances of going back into debt are very big. The debt consolidation program is good, but if you pay off your debt, the rest is up to you to manage your wealth.

 Benefits and Downsides of Debt Consolidation Programs

The whole idea of the program is to fix your debt into one monthly payment instead of having many bills to pay. 

The interest rate on the one payment is lower compared to your previous payments. A lower payment means you will pay your debts faster. Also, if you have bad credit loans, you’ll get a reasonable interest rate from the debt consolidation program than the debt consolidation loan.

Another essential advantage is that the program does not need your credit score to determine your eligibility. There’s no requirement involved in getting a new loan. So you still qualify if you’ve been struggling to pay your current debt.  

While there are significant advantages, you should also be aware that there are fees involved with the debt consolidation program. Please compare the fees with other organizations before you choose one. Every dollar counts when you are paying off your debt.

How Do You Start?

A debt consolidation program starts with a discussion with a professional credit counselor. The credit counselor will determine whether the program is right for you or not. If the credit counselor decides you should enroll, then the debt consolidation program will take over the repayment of your unresolved debts – the ones you choose to include.

Your bad credit loans will continue to exist, but it’ll now be possible for you to make one monthly payment. The funds will then be disbursed to different lenders. The organization you decide to handle the process will communicate with your various lenders during the initiation process and continue as the program progresses.

Is It The Right Decision To Consolidate Federal Student Loans?

When you visit the Federal Student Aid website, it clearly states, ‘consolidating your education loans can make your payments easy.’ However, it can also result in you losing some benefits. They then warn you to weigh the pros and cons and decide if a Direct Consolidation Loan is the best choice for you. 

But how do you weigh the pros and cons? How do you determine whether it’s the right decision to consolidate your federal student loans or not? 

Let’s find out.

What Is Direct Consolidation Loan?

Direct Consolidation Loans help you to combine multiple education debt into one big loan. The result is you pay one monthly payment rather than multiple monthly payments. You don’t have to pay for any application fee for your federal education debt loans to be processed.

Some private companies may contact you to offer their assistance to help you apply for the Direct Consolidation Loan at a fee. These companies have no affiliation with the US Department of Education or ED’s consolidation loan servicers.

These private companies are scammers, so watch out for them. The application process is free and straightforward. There’s no need for anyone to assist you.

Should You Consolidate Your Loans?

There’s no simple answer. It depends on your situation. However, remember that the primary reason most people consolidate their loans is to reduce their monthly payments. The best way to know if the Direct Consolidation Loan is suitable for you is to talk with your creditors and find out how the consolidation will affect your financial situation.

Pros:

  •  Consolidation can simplify your loan repayment if you have student loans with different organizations. It can help you repay your debt with one monthly refund.
  •  It can lower your monthly payment by extending the period to pay back your loans.
  •  You can access additional repayment plan options and Public Service Loan Forgiveness if you consolidate your loan rather than Direct Loans.
  •  If you have a variable-rate loan fixed to an interest rate, you can change it.

Cons:

  • If you consolidated, you might end up paying more interest due to the extended time to repay your loan than if you didn’t consolidate.
  • Outstanding interest on your consolidated loans becomes part of the original principal balance. It means that your interest may accumulate on a higher principal balance than when you did not consolidate.
  • You may lose some borrower benefits like principal rebates, interest rate discounts, or certain loan cancellation benefits that are linked to your current loans.
  • If you pay your current loans under an income-driven repayment plan, you’ll lose credit for payments made towards the repayment plan forgiveness, when you consolidate. In the same way, if you made payments toward the Public Service  Loan Forgiveness, you’ll lose credit for any payments made towards PSLF.

How Does Student Loan Consolidation Works?

When you consolidate your student debt loan, you are combining multiple debts into one repayment plan. After that, you make one loan payment, instead of making individual payments.  For example, take a look at these balances:

  • $20,000
  • $6,000
  • $4,000
  • $3,500
  • $6,000

The total is $39,500 in five student loan balances. But usually, you’d be paying five separate loan payments with five different interest rates. If you consolidate the loans, you’d have one loan with a balance of $39,500, which helps to simplify your finances.

What Type Of Loans Are Eligible For Consolidation?

Most of the federal student loans are eligible for Direct Consolidation Loan, including the following:

Health Education Assistance Loans  Supplemental Loans for Students 
Nurse Faculty Loans     Federal Perkins Loans
  Loans for Disadvantaged Students      Health Education Assistance Loans
Direct Unsubsidized Loan  
Parent Loans for Undergraduate students    Nursing Student Loans
National Direct Student Loans                      Direct PLUS Loans
FFEL Consolidation and Direct  Consolidation Loans (under specific requirements)
Auxiliary Loans to Assist Students               Direct Unsubsidized Loans
Federal Insured Student Loans                     Guaranteed Student Loans
  Health Professions Student Loans     PLUS loans from Federal FFEL Program

You can’t consolidate private school loans. But the full amount of your education debt plus private education loans determines how long you have to pay back your consolidation for Direct Consolidation Loan repayment plans. 

When a parent receives a Direct PLUS Loan to help pay for their child’s education loan, they can’t be consolidated with federal student loans that their child received.

Requirements To Consolidate A Loan

There are four main eligibility requirements for Direct Consolidation Loan. They are:

  1.  Evidence Of Income

Creditors want to know that your financial means are capable of meeting the terms of the condition.

  1. Your Credit History

The creditors will check your credit report and payment history

  1.  Your Financial Stability

One aspect the lenders check is your ability to take financial risk.

  1. Equity

For bigger loans, collateral is one of the most common Debt Consolidation Loan qualifications.

It’s crucial to note that each lender has a different approach to their Debt Consolidation Loan requirements. Some lenders may raise unreasonable eligibility requirements that may not make sense or be too costly. That’s why it’s essential to get financial advice from an expert when you want to consider Debt Consolidation Loan.

How To Apply For A Direct Consolidation Loan

You can submit your application online through the Federal Student Aid official website. Another accepted way is to download the form, fill, and submit by US mail. After submission, your consolidation servicer will complete the required steps needed to consolidate your loan. 

If you have any questions, contact your loan consolidation servicer. They will provide you with any questions you might have.

The Quickest Way To Get Out Of Debt

The truth is, when you consolidate your bad credit loans with a debt consolidation program, you’ll only solve the surface of the problem but not the core. The debt settlement company is the right step to pay off your debt, the best thing to do afterward is to have a good plan on how to stay away from debt. For that to happen, you need a professional adviser to guide you. Watch out for scammers who claim to be professional financial planners. They will drain your time and money. 

Do your research on debt consolidation for bad credit before you address debt consolidation programs. Inadequate research or not doing research atall can cost you thousands of dollars.

To get a free consultation with an expert, call: +1866 218 0754 and save yourself both time and money.