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Debt Consolidation Programs (Overview)

Debt Consolidation: Consolidating debt is the process of combining multiple debt payments into a single payment. Debt consolidation comes in multiple forms such as debt management / credit counseling, home mortgage refinancing, and personal loans. The debt management / credit counseling method of consolidating debts is an agreement between a debtor and a credit counseling agency to repay the principal debt amount in full over a specified period of time (typically 36-60 months). This process is also commonly referred to as a debt management plan (DMP).

Debt Management Plans: A debt management plan combines a number of unsecured debts into one low monthly payment made directly to the agency that then disperses payment to the individual creditors. After approximately three consistent, timely, payments, most creditors typically grant benefits such as waived fees, reduced interest rates and the re-aging of accounts to debtors on a DMP. Creditor concessions allow for a greater portion of the monthly payment to pay off the principal debt amount that is owed by the borrower. Learn more information about how a debt management plan works at our page dedicated to this topic. 

Debt Consolidation Loans: The consolidation of debts can also come in the form of a loan. These loans are used to pay off multiple debts. Debt consolidation loans are usually undertaken to secure a lower and/or fixed interest rate in addition to the ease and convenience of a single payment. Loans involved in the debt consolidation process are typically taken out against a secured asset such as house but can also come in the form of a secured or unsecured personal loan. Consolidating debts through the home mortgage refinancing process carries the risk of foreclosure if the consumer cannot keep pace with the new payment once the debts have been consolidated.

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