Debt consolidation can be achieved through the services of a professional debt-consolidation firm or by transferring debt from higher-interest credit accounts to lower-interest credit accounts. Debt-consolidation firms are staffed by experienced credit consultants who negotiate the settlement of debts on behalf of the debtor. These consultants often convince creditors to waive late fees and reduce interest rates in exchange for the debtor's commitment to a repayment plan.
Debt-consolidation companies usually negotiate simultaneously with several of their client's creditors. Once an agreement with the creditors is reached, the debtor pays a flat monthly fee to the debt-consolidation company, which then disburses the funds to each creditor. Consumers can also consolidate debt themselves using several methods. Credit-card transfers can save consumers a great deal in interest payments. Credit-card companies often offer introductory interest rates to entice consumers to transfer balances. The drawback is that consumers are often unable to pay off the debt before the introductory period expires. Home-equity loans are an inexpensive way for homeowners with equity to consolidate higher-interest debt into their home loan. Home-equity loans also offer the advantage of being tax-deductible. Other options for debt consolidation include borrowing from a 401(K) plan, whole-life insurance policy, credit unions or friends and family.