Forms of Debt Relief

Debt consolidation services are just one of many forms of debt relief. Read on to learn the pros and cons of consolidation and its alternatives.

Professional Consolidation

As you investigate debt relief facts, you'll find that debt consolidation can refer to a number of different things. In this section, we'll focus on debt consolidation services, or professional debt consolidation. This form of debt relief is handled by a professional service that helps you repay your debts faster and more affordably. These services typically work by bundling their customers' debts into one payment that tends to be more reasonable than what the customer was paying before. Once the debts are consolidated, the customer sends his/her payment to the consolidation service every month. This payment is then divvied up among the customer's creditors. The idea behind professional debt consolidation reflects a fundamental fact about debt relief: more affordable interest rates enable consumers to get out of debt more quickly.

Consolidation Loans

You may have heard of debt consolidation loans, particularly home equity consolidation loans. With this form of debt relief, the borrower takes out a new loan, preferably with a better interest rate, in order to pay off old loan obligations. A home equity consolidation loan serves the same purpose but uses the borrower's home to secure the loan. Before you consider a home equity debt consolidation loan, make sure you have all of the pertinent debt relief facts first. Using home equity to consolidate your unsecured debts can be extremely risky because you're putting your home at stake. That means that if you do not repay the equity loan as agreed, your lender has the right to foreclose on your home. Although home equity consolidation loans can provide low-interest debt relief, their risks may be too high for some borrowers.

Balance Transfers

If the debt you want to consolidate is on credit cards, you also have the option of using a balance transfer. A balance transfer moves the debt you carry on one or more credit cards to another card that can offer a better interest rate. By moving the balance to a card with better rates, your monthly payments become more affordable and you can, in theory, pay the debt off faster. The most important debt relief facts to understand about balance transfers are that their interest rates are almost always temporary. Credit card issuers will offer a promotional balance transfer rate that will only last for a few months. After this time expires, you will most likely end up paying rates that are just as high as the ones you paid before the balance transfer.