Excessive credit card debt and other loans can be a stressful thing for many people to deal with. Month after month of making payments and dealing with rising interest rates can be a challenge for even the best run budget. Simplifying these loan payments and working to consolidate debt can be a way to make this process easier and help you lower your interest rates as well.
There are a few ways to consolidate debt and you should explore your options before jumping into anything since picking the wrong program for your needs can actually make the situation worse for some people.
The best way to start the process is to speak with someone that knows how to consolidate debt and has done it before with others. These credit-counseling agencies are available in most communities and they will be glad to help you with debt consolidation questions and will also help you put a plan together to help you find the best way to consolidate debt. You need to do a little research before finally selecting a credit counseling company to work with because while there are many legitimate companies in the debt consolidation and counseling field, there are also a segment of companies that are less legitimate. When considering one of these companies to help you consolidate debts, you should ask for references from others that have used their service in the past so you are comfortable that they know how to consolidate debt and have done it successfully before for others.
Once you have a credit-counseling agency selected, the first thing they’ll want to do is review your entire financial situation. This will usually involve you bringing them current copies of your bills for your loans as well as income statements and other expenses and obligations for the month. Once that have all of this information they can help you to start putting together a budget will allow you to address your debt and start to reduce it over time. One of the ways most of these companies do this is through debt consolidation.
Debt consolidation is the process of taking all of your short-term debt and paying it off with a single, new monthly payment. This does two things for you immediately, it eliminates the confusion of having to make several payments each month and it also typically lowers your interest rate and monthly payment due on these debts. The reason this type of debt consolidation makes sense to many consumers is that it allows them to lower their monthly payments by spreading the high interest, short-term debt of their current loans over a longer period of time. It’s not that it lowers their principal, it just allows them to pay it off in smaller payments each month and gives them more of their budget to use for other things. The advantage this type of debt consolidation is that it’s very flexible. You can take advantage of the lower payment each month when your budget is tight and if you have a better month, or receive a bonus at work you can pay off the loan even quicker.
The other advantage in using this type of debt consolidation to pay off your short-term debt is that this type of financing is typically at a lower interest rate than the original loans. This is because most of the short-term debt that consumers acquire like credit cards is unsecured debt and a bigger risk to lenders. When you have nothing at risk but the debt itself, the lender stands a bigger chance on you eventually defaulting on the loan. This is why they can charge such a high interest rate and are allowed to raise it even higher if you miss a payment.
This is a great way to help repair your credit as well. Your credit report is a very important indicator of your financial health. When you are carrying a few credit cards that are near their limits, this is usually counted against you and affects your credit score. By securing a program to consolidate debts you will lower the amounts on these cards and this will improve your credit rating.
If you can’t obtain a loan to consolidate debt and help you solve your credit problems, you have another slightly more aggressive alternative. Many of these credit-counseling agencies can act on your behalf with your creditors and negotiate more reasonable terms to your outstanding debts. They can help you do this a few different ways depending on your situation.
The simplest way they can do this is to act as your proxy with your creditors. They will typically negotiate newer and more favorable terms for the loan on your behalf and may also have any late fees and penalties waived. They can do this by assuring the creditors that all future payments on the loan will be on time. They also act as a conduit for the payments and you will actually pay them each month and they will make the payment on your behalf. This is typically a stipulation of the reduction agreement and you may be required to have this payment electronically deducted from your pay each month so they are sure you’ll meet your obligations.
If you have fallen behind on payments to a creditor, the debt-counseling agency may be able to negotiate a lump sum payment for the total outstanding debt. This amount will be considerably less than what you currently owe and will have to be paid in one large payment. The creditor may be willing to do this to clear the loan from their books and be willing to adjust the outstanding amount to a percentage of the current debt. While this may affect your credit rating short-term, it is still better than defaulting on a loan for both you and the creditor.
The good news is there are several alternatives that allow you to consolidate debts and help you pay them off more quickly. Speaking to an expert that knows how to consolidate debt is the first step in getting started with a plan. They can help you pick the right program for your financial situation and clear up your debt faster and for less money as well.