Saturday, March 3, 2012

The Best Debt Consolidation Solution

The Best Debt Consolidation Solution

Debt consolidation is a financial process in which you merge many or all of your debts into one regular payment. It has a number of advantages, including the ease of making one payment instead of several, possible reduced payments and faster payoff times. There are several different solutions for consolidating debt.

Consolidation Companies

    Several companies offer debt consolidation. The advantage of using one of these companies is that they do all the work for you. They also typically have relationships with many credit card companies and other lenders to help negotiate lower interest rates and waive late fees to help reduce the debt you owe. The process involves choosing a consolidation company, sending them all your debt information, then waiting for a proposal from them as to how much you pay each month and how that money is allocated across all your debt. They can also help you determine an approximate date as to when your debt will be paid off, as well as help you create a budget to manage your payments and other expenses. Companies should be accredited by the American Association of Debt Management Organizations, the Association of Independent Consumer Credit Counseling Agencies or the National Foundation for Credit Counseling.

Balance Transfers

    Another way to consolidate your debt is through low-balance credit cards and balance transfers. Many people open a low-interest credit card with a high credit limit, transfer all credit card debt to the card and use the card to pay off other debt. You run up the balance quickly but have to make one payment each month. Also, since it is a low-interest card, you are probably saving money on reduced interest payments each month. If the interest rate rises after a period of time, like 12 months, then many people look for new cards to transfer the balance to before the interest gets higher, and repeat this cycle until the debt is gone.


    Loans are another way to consolidate your debt into one payment. Essentially, you use the money from the loan to pay off the debt, then make regular payments on the loan until it is paid off. The loans can come from a bank, lender or family or friend. If you borrow from a family or friend, establish clear repayment details so the plan is understood by both parties, and make your payments regularly so you do not hurt your relationship with the person. Loans often get you lower interest rates and allow you to end relationships with credit card companies or other companies you owe money to.


    While debt consolidation is beneficial for many people, especially those who otherwise cannot handle the debt payments on their own, it does come with some drawbacks and downsides. If you use a debt consolidation company, your credit score will likely take a significant hit during the repayment process. You might not be able to open new credit cards or get approved for other loans for a car or house. Also, debt consolidation might help you pay down your debt, but it does not always address why you got into debt in the first place. You essentially just move the debt from many places to one new place, but the debt, and problems that caused the debt, are still there. You need to evaluate your financial habits to ensure it never happens again.


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