What is Debt Consolidation?
Debt consolidation is the process of combining multiple debts from credit cards, high-interest loans, and other bills into one monthly payment. Debt consolidation solutions may lower your interest rate, which can help you save money on interest, lower your monthly payments, and pay down debt faster.
The Benefits of Consolidating Debt
There are several examples of why consolidating your debt can be a good option for some people. Those who are suffering from debt because of unpaid credit card bills, medical bills piling up, or owe a collection agency often experience a feeling of being overwhelmed. The best reason we can think of to join a debt consolidation program is because it gives you a financial plan to stick to in order to get rid of your debt in a certain time frame.
The process starts out with the Debt Company you are working with to negotiate your rates down with the creditors who you are in debt with. This is the debt settlement process. Once this task is done, and IF they are successful in negotiating the rates down, the next step is to offer you a Personal Loan or a Debt Consolidation Loan that is enough to cover the total of all of your debt at the negotiated rate. This loan is only allowed to be used to pay off all your debt, thus consolidating it.
Cons of Debt Consolidation
While this process may seem like it is the best option for you, there are several side effects that you will need to be aware of. These types of programs can take years to completely pay off all your existing debt. The struggle for most people is not accumulating more debt outside the program while they are on these payment plans. You also may want to use a free credit check before entering one of these programs to see where you stand. If your credit is over 500, we don’t recommend doing this program as it will damage your credit by over 100 points, depending on the amount of debt you have. If you already have a low credit score, then it may be a smart option for you, as your credit is already bad, and going through with the consolidation will increase your credit over time.
Debt consolidation is definitely an option for most people to think about depending on how deep they are. If you are only in $10,000 worth of credit card debt with good to excellent credit, then you most likely will want to figure out how to pay off your debt in some other fashion. The most important fact is that you develop a plan to stick to and a timeline to pay it all off. To understand the importance of what debt can do to your health and affect your loved ones, you need to understand how debt can turn into a lifetime of stress.