Debt Consolidation
The meaning of debt consolidation is to collect many credit card debts, loans as well as other liabilities and combine all of these into a single loan. The debt consolidator takes out a single loan to repay the debt as a whole. In a nutshell, to consolidate debt is to convert all the loans in one loan and this is generally at a lesser negotiated interest rate. As per the Federal Reserve Board, if the mortgage debt is not considered, the debt in the households in America has become more than $2 trillion. In these households, if there is one credit card, the debt per credit card has reached $9000. Accordingly, if a typical household has four credit cards, then the debt would be 4 X $9000 = $36,000. In the United Kingdom, as per the Bank of England, the consumer debt has crossed the £1 trillion mark. Consider that a person has unsecured debt of $35,000. One debt is of $20,000 for 4 years @ 12 percent APR. Another debt is of $15,000 for 2 years @ 10 percent APR. In case of the first loan, the annual interest is $2,400. Thus, the monthly interest is $200. The monthly premium is $417. So, the total monthly payment is $617. In case of the second loan, the annual interest is $1500. Thus, the monthly interest is $125. The monthly premium is $625. So, the total monthly payment is $750. Hence, the gross monthly payment is $1367. A debt consolidation company will decrease the APR to 8 percent and demand a monthly payment of just $750 per month. However, the company will not tell that this amount has to be paid for 6 years. The pre-debt consolidation payment for the first loan is $29,616 and for the second loan is $18,000. This when added gives a net payment of $47,616. After debt consolidation, one has to pay $54,000. In this way, the company has made money from you.