What Everyone Should Know About Debt Consolidation
It’s no secret that thousands of Americans are drowning in debt, and much of it is due to poor money management skills, overspending and a failing economy. The top reason for the high debt consumers have is poor money management and the second is due to job loss. Whatever reason for your debt woes, it’s important that you learn what you can do to have the debt eliminated. There are a variety of products that you can use to help dwindle down your debt until it’s no more. It’s up to you to determine which of them is best for you and your situation. One of the best ways to handle debt is with debt consolidation.
Overview of Debt Consolidation
Debt consolidation is the process of collecting all of your past due balances and combining them into one. Then instead of paying off your debts individually, they are paid off all at once by alone, leaving you with one payment per month. For example: Sarah owes $13,000 in credit cards, $15,000 in car loan and $5,000 in student loans. Sarah goes to a debt consolidation service provider and the agent combines all of her debts, which totals to $33,000, and providers her with a loan for that amount. Now that the other debts have been paid off, Sarah only has one debt to pay off, the debt consolidation loan.
What makes debt consolidation a great option for most is the idea of having one low monthly payment to worry about. This option also raises your credit score and by making on-time payments, you find yourself getting closer and closer to becoming totally debt free.
Types of Debt Consolidation
There are a variety of ways that one could consolidate their debt, such as through a personal loan, home equity loan or debt consolidation loan. Below, you will find the different options that are available for consolidation debt:
- Personal Loan: A personal loan can be obtained through a bank you currently have an account with or another. Personal loans are unsecured and have fixed payments over a specified amount of time. If your credit score isn’t too bad, you should be able to obtain the loan and use it to take care of your debts.
- Debt Consolidation Loan: Banks and credit unions offer loans for consolidating debt. These loans are specifically for combining debts and paying them off. Most come with low interest rates and if needed, you can extend the length of the loan, so that your monthly payments are lowered.
- Home Equity Loan: If you have a home that you own or have a mortgage on, you can use it as collateral for a home equity loan. Interest rates for these loans are usually lower than other loan types. The risk here is that you could fall behind on payments and lose your home.
- Credit Card Balance Transfer: This option allows you to place all of your credit card balances onto one low interest rate balance transfer card. If you have lots of credit card debt, this option may be right for you. Keep in mind that balance transfers that are too high can have a negative impact on your credit score.
Who Needs Debt Consolidation
Debt is on everyone’s plate. It comes in many forms, including light bills, credit card bills, car payments, rent and mortgage payments. What differentiates one person’s plate from the other is whether their debt has gotten out of control. If you are struggling with making timely payments each month, then it may be time to consider consolidating your debt. Having bills is debt enough and when you start to fall behind, you only go deeper and deeper into debt. What’s worse is that credit card and loan debts have interest that raises your balance higher and higher each month. Anyone who has fallen too far behind in debt payments to catch up and avoid high interest accumulation should consider consolidating their debt.
Benefits of Debt Consolidation
Debt relief is within reach when debt management methods, such as consolidation, are being used. Having one monthly bill to pay for all of your past due debts is a sigh of relief for many. So not only will you get a peace of mind, you will also be taking a road to freedom. Not to mention, you’ll see great improvements in your credit report in a short period of time. As your credit score begins to raise, you can begin making plans for your financial future. Maybe you want to buy a new car or home, but didn’t have the credit score before to get financing. If you choose to obtain credit after debt consolidation, make sure that you maintain your payments to avoid falling back into a pit of debt.