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Want to pay all your bills with one check? Debt consolidation may be the answer. It’s not a loan or bankruptcy but a program, run primarily by nonprofit organizations, that helps reduce interest rates, eliminate late-payment fees and lower payments.

With consolidation plans, organizations such as Consumer Credit Counseling Services and arrange for you to pay off your debts within three to five years, although it may vary depending on your needs. That’s a pretty attractive idea, considering it takes the average person 10 to 20 years to make credit balances disappear. However, participating in a consolidation program could affect your ability to get new credit or a loan because some creditors will put a red flag to lenders on your credit report. Here’s how the plan works:

1 After giving a program counselor the account names, numbers and balances that you want to combine, she will help you work out a budget and determine how much you can afford to pay toward your debts.

2 The consolidator will then contact your creditors and work out payment arrangements. (Most consolidators charge up to 15 percent of your monthly payment to cover program costs.)

3 You make a monthly payment directly to the consolidator, who will pay the creditors on your behalf.

4 The accounts placed in the program are frozen until they are paid in full. To learn more about debt consolidation, call the National Foundation for Credit Counseling at (800) 388-2227.

This Financial Services article was written by Melissa Ewey Johnson on 6/1/2005

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