Sunday, November 8, 2009

The Best Debt Consolidation Plans

The Best Debt Consolidation Plans

If you find yourself deep in debt, or struggling to pay off your debt, consider debt consolidation. Debt consolidation is when you merge all or many of your debts into one account or monthly payment. It makes life easier since you only have to manage one consistent payment each month, rather than many different payments. It can also save you money with reduced interest rates. You can implement a number of plans to consolidate your debt.

Debt Consolidation Companies

    Several nonprofit and for-profit companies help you consolidate your debt. They usually deal primarily with credit card debt. Some are more safe than others; check the Better Business Bureau to see if any complaints have been filed against a company, and make sure the company is accredited by the Association of Independent Consumer Credit Counseling Agencies or the National Foundation for Credit Counseling. The company will work with your creditors to negotiate a payment plan, lower interest rate and possibly get some of your late fees or other fees removed. You then make one regular payment each month until the debt is paid off. Sometimes your monthly payment includes a monthly fee that the company keeps.

Loans

    Another way to consolidate your debt is to use a loan to pay it all off, then pay back that loan aggressively. Loans often have lower interest rates than credit cards and other debt. You can take out a home equity loan if you have enough equity on your home and if you qualify. You can also take out a larger mortgage on your home, or apply for a personal loan from a bank. Or, you can ask a friend or family member to loan you the money, but if you decide to do this, agree on a payment plan in advance. Loans between friends and family members can have bad effects on the relationship.

Credit Cards

    Credit cards are another way to consolidate your debt and pay it off faster. Many companies offer credit cards with zero percent interest rates or low interest rates for a period of time, like 12 months. If you qualify for one of these cards, you can transfer your existing credit card debt to this card and use it to pay off other debt as well, then pay off the zero interest credit card as fast as possible. If you still have a balance and the interest rate is about to rise, you can apply for a different low-interest credit card, transfer the balance to that new card, and continue the cycle until the debt is paid.

Debt Snowball

    A different approach to paying off your debt quickly is to use the debt snowball method. Dave Ramsey, a financial author and radio talk show host, instructs people to list all of their debts, starting with the smallest amount. You first work hard to pay off the smallest debt, while making minimum payments on all other debt. Once the first debt is gone, you move on to the second-smallest debt, and apply the money you were paying on the first debt, plus the minimum payment you were already making. You continue this until you pay off the most expensive debt. The payments get larger each time you pay off one debt, because the payments create a snowball effect. Each time a debt is paid, you apply all the money you were paying plus the minimum payment, so the payment increases with each debt.

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