(Is Debt Consolidation Smart?)
Debt consolidation is when you have more than one debt and those debts get combined into one debt. This is the most basic explanation. Typically what happens is that a lender gives you a new loan that pays off all of your old loans and then you make one monthly payment to your new lender. This new loan carries interest, so you will end up paying the total balance of your previous debts plus interest.
Be wary: Some California debt consolidation companies are not lenders. They do not give you a new loan that covers your old debts – they just collect a monthly payment from you, disburse some to your creditors, and keep some for themselves. These programs can send you into default and hurt your credit. Make sure to only go to an accredited lending institution for debt consolidation.
The only time our debt law firm would recommend debt consolidation is if an individual or business carries debt with extremely high interest rates, and they can get a loan from an accredited lender with a much lower interest rate and manageable monthly payment. This is a great situation to do debt consolidation.
Otherwise, California consumers and small business owners should consider debt settlement. This is where an attorney negotiates for substantial reductions in your debt. You pay less than debt consolidation and over a shorter amount of time – even after attorney’s fees – and you are represented by an attorney.