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Debt consolidation is a sensible solution for consumers overwhelmed by credit card debt. Consolidation cuts costs by lowering the interest rate on debts and reducing monthly payments.Debt consolidation is a financial strategy, merging multiple bills into a single debt that is paid off by a loan or through a management program.
The loan is repaid in monthly installments at an interest rate you negotiate with the lender.
If you are falling behind paying off your credit card debt, it’s very likely your credit score is tumbling, too.
If the interest rate you get for a debt consolidation loan is not lower than the average interest rate you already were paying on your credit cards (see above), then a debt consolidation loan does you no good.
Instead, the nonprofit credit counseling agencies work with card companies to reduce the interest rate and lower the monthly payment to an affordable level for the consumer.
The consumer sends a monthly payment to the credit counseling agency, which then distributes the money to each creditor in an agreed upon amount.