Thursday, June 16, 2016
When you consolidate your debts, you usually make a monthly payment to one creditor, as opposed to many different creditors. This can help reduce missed or late payments, and can help you catch up on your bills much quicker. Consolidating your debts can save you from having to pay multiple debts with high interest rates.
There are a few ways to consolidate your debts. One way to do so is by taking out a consolidation loan. Simply put, you take out a loan for your outstanding debts and pay them off completely. Then, you make one payment each month to your lender or creditor, just as you would a car payment or mortgage.
The important thing to remember with consolidation loans is that interest rates will vary by individual creditworthiness. When you take out a consolidation loan, make sure the interest rate is lower than the rates of your existing debts. This will help you save money from having to pay higher interest rates. If the rate is higher than your current rates, it will not pay to have a consolidation loan.
You can also take out personal loans or home equity lines of credit to use as a consolidation loan. Another alternative is to open a new credit card that offers low or no interest for transferring balances. This way, you can still reap the benefits of having to make one monthly payment, as opposed to several smaller payments to various creditors.
Another debt consolidation option is to enroll in a debt management program. In such a program, a credit counselor will review your current financial state, including debts and revolving monthly payments. They will then create a budget and calculate how much you must pay your creditors each month. From there, you will be asked to make one monthly payment to the counseling agency and they will make sure your various creditors receive at least the minimum payment.
Debt management programs can work for individuals who have a hard time paying their bills on time. However, you should watch out for which credit counseling agency you sign up with because some less-than-honest agencies will hold onto your monthly payment longer than they should so it can accrue more interest. Your best bet is to enlist with a reputable, nonprofit agency.
Whichever option you choose, pick the one that best suits your situation and lifestyle. Remember, it may take a few months to a few years to clear off all your debts, but if done properly, consolidating your debts can help you gain more control and finally get those bills paid off. You will feel good if you take this first step to get clear of debt, call your local lender today.
Posted by britlane at 8:22 AM