Do you have debt? Are you wondering how debt consolidation works? Are you wondering if debt consolidation is for you? There are some facts that you need to consider before consolidating your debts. Simply put, this is an option that allows you to pay all your debts with one monthly payment as opposed to making several payments each month to cover your unsecured monthly debts.
There are 2 types of debt consolidation. The first method requires you to refinance your current debt with another loan and the second type consolidates your debt through a debt management organization. This option does not require you to own a home or take out another loan.
The first debt consolidation alternative is usually done by either transferring your credit card balances to another credit card with a low introductory rate or 0% interest rate. A home equity line of credit is another debt consolidation loan option. You will have a lower interest rate with a HELOC and probably lower monthly payments. I am not a big fan of financing debt with another loan. It makes more credit available and for people that are challenged by managing credit card debt and this is not a good thing.
There are also 2 debt relief options that consolidate your unsecured debts without a loan and they are credit counseling and debt settlement. Both of these methods go through services that work with you and your lenders to get your debt paid.
Credit counseling is an option that will consolidate your debt without a loan. If you have credit card debt and can make a 2% payment, in most cases, this will be your most desirable debt consolidation alternative for debt repayment. You will make one monthly payment that will be disbursed to your lenders. Interest rates are reduced and fees are not charged when you are in credit counseling. This debt relief method can take anywhere from 3 to 7 years to complete, depending on how much you owe and how much you pay each month.
Debt settlement is the other debt consolidation alternative that does not require a loan. This is something that should be done as an alternative to bankruptcy. Your credit card balances are reduced by negotiating settlements with the lenders on the original credit card balances. The amount that is written off usually averages 50%, but it will vary depending on the lender and the age of the debt.
You have several options when it comes to debt consolidation, but they are quite different from each other. There is a lot to consider when selecting a debt consolidation program.
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Is credit card debt stealing your dreams? Find out how credit card debt consolidation can help you regain your financial stability and allow you plan for the future.
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