Answer by a_wood80 They don’t reduce your debt. They “loan” you the money to pay off your other debts, and then charge you interest on that. That way, you only have one interest rate and one payment to worry about.
I have dealt with debt consolidation multiple times and never has any company suggested (nor would I believe they could) that they could cut my principal. They can only reduce your interest rate by giving you a new loan at the lower rate. They can pull multiple loans into one, but again the principal amount remains unchanged. You owe less because your interest is less or the life of your loan is longer so you pay less monthly for more months. I consolidated several credit cards and my interest rates went from 23+% down to less than 10% so my monthly payments were half of what they were. Most of those companies are owned by the same group of banks and exist to ensure that you continue to pay and don’t go into default or file Chapter 7. Don’t think they are doing you any favors.
I have dealt with debt consolidation multiple times and never has any company suggested (nor would I believe they could) that they could cut my principal. They can only reduce your interest rate by giving you a new loan at the lower rate. They can pull multiple loans into one, but again the principal amount remains unchanged. You owe less because your interest is less or the life of your loan is longer so you pay less monthly for more months. I consolidated several credit cards and my interest rates went from 23+% down to less than 10% so my monthly payments were half of what they were. Most of those companies are owned by the same group of banks and exist to ensure that you continue to pay and don’t go into default or file Chapter 7. Don’t think they are doing you any favors.