Most people turn to debt consolidation in order to get themselves out of debt fast. By combining multiple debts into a single payment, debt consolidation companies often make a manageable plan to reduce what you owe. Usually, the combined debts will have a low interest rate credit card.
By consolidating, you also cut down on the interest on many other debts, thus reducing your total monthly payment. But is debt consolidation for you? Consider whether it’s right for your situation. There are some clear benefits and drawbacks to debt consolidation. If you find that you’re making your debt payments more manageable, then debt consolidation may be right for you.
Consolidation saves both time and money. One of the reasons that so many people file for bankruptcy is that they have so many bills that they can no longer keep up with them. A bankruptcy filing locks your credit cards from future approval and destroys your credit history. By using debt consolidation, you can apply for new credit cards and re-establish credit history over a longer period of time.
Consolidation allows you to focus on paying off your debts in one fell swoop. When you pay off your high interest credit card bills, you can then eliminate those bills from your credit report. This gives you a clean slate to apply for other loans and charge accounts. This leads to long-term financial success. However, debt consolidation doesn’t help you to eliminate multiple debts that are all charging you high monthly interest rates.
Some debt consolidation loan companies offer the option to roll your high-interest credit cards into a single lower-interest payment plan. These lower payments will often save you hundreds of dollars each month. The best part is that you only have one payment to make. Instead of remembering to make many payments to many different companies, you just need to make one payment each month.
If you are considering debt consolidation loans, the first step is to decide what type of loan will benefit you. Do you have one or several debts that are sucking up your monthly income? Or do you have a wide variety of unsecured debts that are earning you high interest rates? Once you know the answers to these questions, you can start looking for the right lender.
Many people get into trouble by combining unsecured debts into one loan that has a high interest rate. For instance, suppose that you owe money to three different payday loans. You could consolidate them into one loan that would have a lower payment but a much higher interest rate. You could potentially be paying thousands of dollars a year in interest charges if this goes on for too long. But by consolidating all your small, quick cash loans, you’ll be paying significantly less each month.
In addition, debt consolidation loans can help you to simplify your budget and manage your monthly payments. Instead of writing several checks each month, you can simply make a single check to pay the bill. This also takes the stress out of remembering to mail out your bills, faxing them to collection agencies, and skipping payments on your credit cards. And by consolidating your loans, you’ll avoid the late fees, over the limit fees, and high interest rates that come with multiple debts.