Loans have become part of everyday life. We get them to advance in certain areas of our lives. Some get them for educational, business-related, health purposes and inevitable situations. At times we take them for leisure and to get through tough times. Getting them is so easy. Having to pay them back is the difficult part. You might end up overwhelmed by all the debt you got yourself into and the struggle of paying it off. Here comes a godsend called debt consolidation. This is a loan that pays off your multiple creditors and you end up paying one loan. Even though it sounds amazing you will have to consult a certified credit counselor before applying for it.
How It Works
Now that you might have dived into the deep end of debt and the waves of pressuring credit dues are overwhelming choose debt consolidation. You will have to get a debt consolidation loan. First, compile credit card bills: amount owed, the average rate of all creditors and monthly payment. Seek assistance from a nonprofit credit counseling agency to coach you through budget making. This will be done for free. You will have to choose between consolidation loans, a debt management plan or debt settlement. Compare interest rates, the monthly payments, and the time it takes to pay off before decision making.
However, it is to be noted that your debt does not decrease. The payment of the new loan will be done in moderate, affordable monthly amounts till you are done at a reasonable rate. The time period may increase but it is still convenient. The best way to consolidate debt is by paying off creditors with smaller balances then adding the bigger payments till all are all sorted.
This method enables one to have one creditor instead of the multiple creditors. It lowers the interest rate and the monthly payments are lowered making it easier to repay debt. There are several types of consolidation loans that include equity loans, zero-interest balance transfers (credit cards), consolidated student loans and business loans.
Debt Management Plans
In this option, you will seek counsel from a credit counseling agency that will contact all your creditors and plan for your unsecured debts to be put on the repayment plan. This may be mimicking the process of the consolidation loans but in this case, another loan may not need to be opened. For secured loans, the credit counselors will arrange for payment methods that will be suitable for you. It is made affordable for you.
This is paying off your debt to the creditor on an agreed price, lower than the owed amount with assistance from the debt settlement company. One stops paying their debt to their creditors and starts to pay through the settlement company. The settlement company will negotiate with the creditors on a structured repayment plan that lasts at most 2 years.
In closing, debt consolidation is a platinum idea. However, you need to be very careful with the institutions you deal with to help you in your consolidation. Some may end up living you in more debt than you had. Beware and also avoid getting back in debt.