Debt consolidation

Tue, May 28, 2013

Financial Advice

When debt becomes overwhelming, consumers have several different options to deal with the situation. For some, bankruptcy is the only option when paying off the bills is impossible without legal assistance to get things under control. Unfortunately, this often reflects poorly on a credit report and it can be tough to get a loan or even establish positive credit for several years. On the other hand, many have found debt consolidation to be the solution they need to wrangle in their debt and start making a real difference when it comes to decreasing the balance.

Debt consolidation involves bringing together several different debts. Instead of making multiple payments to multiple lenders, all debt is filtered into one loan and paid to one lender. There are several benefits to debt consolidation and consumers often find that this is the best solution for helping to manage and decrease debt. A credit check is usually necessary to take out a debt consolidation loan.

One of the most important benefits of debt consolidation is the lowered interest rate. Those paying on credit cards know that the balances are subject to higher rates than a person might find with a personal loan through a reputable lender. Higher interest rates mean that when a consumer pays only the minimum payment, a large portion of it goes towards interest. Very little goes towards the actual balance owed. When all of the credit card debt is placed in one loan, with a lower interest rate, it is easier to manage the debt and easier to actually pay off the balance.

In addition to lower interest rates, customers find that making only one payment lessens the stress that comes with trying to pay bills. Instead of keeping track of multiple accounts, a person simply makes one payment each month. This prevents things like late payments and even over the limit fees that are often charged when someone goes over their credit limit. Having one payment could save some consumers a considerable amount each month.

There are multiple ways to go about debt consolidation. In some cases, the debt can be rolled into the mortgage through a refinance or a second mortgage can be set up. These loans use the home as collateral and the monthly payment changes based on the equity in the home and the amount of debt absorbed by the loan. At other times, the consumer can transfer several balances to a zero interest credit card, consolidating multiple debt accounts and then attempt to pay it off before the promotion expires.

Each of these options is valid. However, one of the most common ways to work through debt consolidation is with the help of a professional. A company can look at the total amount of debt and create a loan with a lower interest rate. Then, the balances from other lenders are all rolled into the new loan. This lower interest rate is usually a considerable change from the interest rates paid on things like credit card balances and student loans. One payment is made and the consumer escapes from some of the high pressure financial situations of the past.

If a person has high interest credit cards and wants to make a change, debt consolidation might be the best option. Some consumers find themselves struggling to make the monthly payments and trying to catch up from different fees that have begun to overwhelm their financial situation. These individuals can use debt consolidation as a way to get a little bit of help and lessen the frustration and confusion of multiple high interest loans. In some cases, a little debt relief can go a long way.

, , , , , , , , , , , , , , , , , , ,

Leave a Reply

CommentLuv badge