If you’ve searched for ways to help you get out of debt, you’ve probably come across debt consolidation. This is one of the most common and widespread methods used for helping individuals with large sums of debt. But, how does debt consolidation work? And what are the advantages of it?
Essentially, debt consolidation is a process which involves paying off ones debt by taking out single loan or lump sum amount. For instance, if you have 5 credit cards totaling $18,000 in debt, you could take out a debt consolidation loan for this amount and use it pay off all of your credit cards. Now, instead of having to make 5 monthly payments to your credit cards, you’ll only be required to make one payment towards the loan.
There are many benefits associated with debt consolidation, which is why so so many people in debt seek this solution. One of the most attractive advantages is the lowered interest rates associated with a debt consolidation loan. No longer are you forced to pay those ridiculously high interest rates with your credit cards. Just be sure you get a good interest rate on the loan before accepting it.
Because you’ll only have one payment to make with a debt consolidation loan, you’ll likely find it much easier to keep up with the payments. When you have half a dozen credit card and other bills sent to your mailbox each month, it can become quite difficult to keep up with all of them. However, when there’s only one bill for the debt consolidation loan, it will be easier to stay on top of.
Credit consolidation is an excellent alternative to filing for bankruptcy. It will likely still negatively affect your credit score, but not as severely or long as bankruptcy will. For this reason, you should check and see if you qualify for a debt consolidation loan first.
Debt consolidation works for all types of unsecured debt, such as credit cards, personal loans and other unsecured loans. Although, it wont work for secured debts, such as mortgages, auto loans, boat loans or any other type of debt which has something backing it. If you have unsecured debt, you’ll either have to pay this off separately or consider forfeiting the item.
When choosing a type of debt plan to take, you should always look into debt consolidation. While it’s not always as feasible option for some, it’s helped millions of people get out of debt. You’ll still have to pay back the loan, so only take out the loan if you have the ability to pack it.
There are dozens of financial institutions that offer debt consolidation loans. I recommend first checking local banks where you have open accounts with. Not every financial institution will offer you a loan. They’ll look at your credit history, ability to pay, bank accounts, and they may still have you back it with some form of collateral, such as the title to your car or vehicle.