Debt Consolidation better known as Consolidate Debt is a process where your multiple bills are consolidated into one monthly single payment. On approaching a debt consolidation firm, the consultant first analyses your present debt amount. The debt consultant then negotiates with the creditor on your behalf and reduces your debt amount to around 30%-60%. In most cases interest rates are reduced. Late fees and hidden taxes are also waived at times. The revised debt amount is divided into easy monthly installments that make your repayment plans much easier.

> 1. Elimination or reduction of accrued interest and penalties: When debtors default on any account, the interest and financial charges are stacked over the debt. Hence the total debt amount continues to grow like mushroom. Debt consolidation program eliminates the portion of your total bills built up by accrued interest and other financial charges. The total debt amount is reduced consequently.

To make it clear, if a $2000 debt has piled up to $5000 where the $3000 is due to the interest and other penalties, then consolidation first eliminates $3000 from the debt. So now you owe: $5000 - $3000 = $2000

> 2. Single monthly payment for all the debts: Debt consolidation acts like an umbrella that covers all the unsecured debts, like credit cards, medical bills, utility bills and offers one monthly payment for all the debts.
You have to pay one payment to the consolidation company every month and the company will disburse the fund to all your creditors. Thus you need not remember the payment dates for all the accounts any more and the chance of being late is minimized.

> 3. Reduced rate of interest: Counselors working in the consolidation program negotiate with the creditors and turns up with a much lower rate of interest. This way the debts are restructured with new interest rates and the minimum payments are also less than what used to be earlier.

For example, you have three credit cards with 18%, 12% and 9% rate of interest. Average rate of interest you have been paying:

(18% + 12% + 9%)/3 = 13%

After consolidation, the interest rates become 12%, 10% and 7% respectively. Now the average rate of interest becomes:

(12% + 10% + 7%)/3 = 9.66%

Now if you owe, $5000, then the reduced rate of interest would save more than $1500 for you.

> 4. An effective repayment plan with budgeting tips: Counselors prepare a repayment plan for the debtors willing to consolidate their debts. The repayment plan is really helpful and let consumers save some bucks for emergency; hence the chance of getting default on debt consolidation program is lessen.

> 5. Your debt free life is accelerated: People tend to pay minimum on their credit cards and revolve the balance to successive months. This elongates the indebted period infinitely. Even if anyone pays little more than the minimum, it might take 12 – 15 years to become debt free. The result is, you keep paying more and more to the credit card company. A successful debt consolidation program can make one debt free within 2 to 4 years and saves some money for you.

> 6. Get rid of collection calls: By placing your debts under debt consolidation program you can avoid harassing collection calls too. The consolidation company you are working with will negotiate with your creditors and collection agencies on your behalf and notify them that they will be representing you from then on. This is definitely going to nurse your headache.

> 7. Obtain a good credit: Late payments, defaults and charged-off accounts make credit report ugly and your score goes down consequently. Once you are enrolled, your accounts start to get paid off eventually. As a result your report starts shining. When all the accounts are paid in full, the consultant working with you negotiates with your creditors and tries to get your accounts reported in your favor.