Debt consolidation is a common method of solving debt problems for individuals that can no longer afford to make their monthly payments, especially on debts with high interest rates like credit cards. Debt consolidation seeks to reduce the burden of debt by changing the way the debt is structured, exchanging many debts or late debts with a new loan that makes payment more simple and hopefully more affordable for the debtor.
No Extra Fees or Other Scams
Credit card debtors often make easy targets for scams or companies that are only interested in making a profit and not helping people manage their debts. Debtors who want to consolidate should avoid companies that charge up-front fees for examining finances without promising any services, or companies that promise to work with creditors or perform other tasks the debtor could do just as easily alone. Some debt consolidation agencies actually specialize in making consolidation loans, but these are are and require close investigation.
Lower Rates
The best debt consolidation program will not only combine your credit payments into a single, more manageable loan, but it will also try to reduce your average payment. Consolidation can do this by manipulating interest rates. If the rate on the consolidation loan is low enough, you will not have to pay as much interest as you previously did on your old debts with their combined rates. This is especially true of credit card debt, which can come with very high interest rates if it is not paid off.
What's Best for You
A good debt consolidation program will take your personal finances into account and not try to fit you with a solution or a loan that will not help you. Most consolidation programs offer either changes to original debts or debt settlements that replace old debts entirely. There is no best way. The best program will choose the option that fits your needs, or a combination of both techniques to help you manage your debt and avoid problems like bankruptcy and foreclosure.
Government Programs
There are many government programs designed to help people with debt consolidation. These programs are often the best choice. There are options for veterans, minorities, those affected by particular financial crises, those below a certain income level and many others. Federal programs are often supplemented by state programs with more specific limits.
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