After the recent financial upheaval, a large number of individuals are not being able to manage their finances and therefore, incessantly falling into debt. According the latest statistics of the Federal Reserve, the total amount of consumer debt in the United States stands at nearly $2.4 trillion. Based on this statistics, this figure is to be worked out nearly $7,800 in debt for every man, woman and child lives in the U.S. If you are one of this staggering numbers of debt-stricken individual, then it is recommended to pursue debt consolidation.

Debt consolidation is a process that allows people consolidating all their debts into one fixed monthly payment. This helps you make lower payment every month and deal with one creditor instead of many. So let us here take a close look at how debt consolidation program works.

Phase 1:

If you are finding it difficult to manage your multiple debts and handle several creditors, it is advisable to enroll in a debt consolidation program. The main purpose of the program is to help you meet your monthly payments and get out of debt as soon as possible.

Contact at least more than two consolidation companies and review their background. Ensure whether the companies are legitimate and charge high upfront fees. After you hire the services of a company, they will review your financial background and determine the total balances owed on each of your debt. Then depending on your unique fiscal situation, and your monthly income and expenses, the company will decide on the amount you will be able to afford to pay each month.

Phase 2:

After the consolidation company evaluates your ability to make monthly payments, they will contact your creditors and negotiate with them to reduce the interest rate on each credit. This lowers your minimum monthly payments and saves some money in the long run.

For instance, you have three credit cards at interest rates of 18%, 12% and 9%, then the interest rate at which you had been paying is 13%. Now after consolidation, if the interest rates come down to 13%, 10% and 7% respectively, then the interest rate you will be paying is 10%. So you can save 3% on your monthly payments.

Phase 3:

Then the consolidation company will collect fixed amount from you each month, and distribute it among creditors in order to pay down the debt. In this context, it is to be mentioned that people can typically repay theirs debts in 46 months, before enrolling in a debt consolidation program. But after enrolling in a consolidation program, people can repay their debt in 38 months, so the time period saved through debt consolidation is 8 months.

In conclusion, debt consolidation program can save your monthly payments and can save the time period of debt repayment.