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Multiple Debts Too Much to Handle? It Might Be Time to Consolidate

Posted By:  |  February 3, 2014  |  0 Comment(s)


You’ve probably heard it before, though perhaps it’s never been applicable to your life. Now, as you begin to become more established, you may have a common symptom of your progress: many different sources and forms of debt. Whether you’ve obtained a personal loan for a vehicle, a student loan for your education, several credit cards, or all of the above, you may now be looking more closely at your options for debt relief. Perhaps now you’d like to consider learning more about something you’ve heard of before, but never really understood: debt consolidation.

What Is Debt Consolidation?

A common option that helps borrowers and debtors obtain relief from their debt and work towards paying it off, debt consolidation is obtained through a measure whereby the borrower takes out an additional loan — typically with a lower interest rate — and uses that loan to pay off their multiple forms of debt and credit.

Debt consolidation can come in the form of unsecured loans, but commonly involves a secured loan with an asset that is used as collateral. Commonly, this collateral is a borrower’s house, where a mortgage loan with a low interest rate is secured against it. Without the collateral on a loan, the loan’s interest rate would generally be higher, since offering an asset for collateral lowers the lender’s risk on lending the money to the borrower.

When Should You Consider This Form of Debt Relief?

Using credit to pay off other credit may seem like a strange concept at first, but when you understand the differences in interest rates, it can make more sense. If you have multiple loans or credit card debts with high interest rates, you are an eligible candidate for debt consolidation. Especially if you find yourself becoming overwhelmed with your multiple debts, which you have to stay on top of servicing on a monthly or weekly basis, debt consolidation can be the perfect measure to help reduce financial anxiety, avoid late payments, and save money on interest costs.

The Benefits of Debt Consolidation

Debt consolidation is a measure often taken for its logical offerings: it can significantly decrease the amount of money a debtor will pay on interest of their multiple forms of credit, and it allows for a much simpler strategy for debt repayment. The simplicity of debt consolidation, and the ability to service just one debt every month, is an attractive benefit to this form of debt relief for many borrowers who have multiple lines of credit, credit card debt, student loans, and other personal debt. Fixed low rates can commonly be obtained on debt consolidation loans, which also commonly offer no annual or repayment fees, lowering financial worries and saving more money for the borrower.

Consolidation Isn’t For Everyone

While we advocate the use of consolidation for many individuals, keep in mind that it isn’t for everyone. If you’re easily making more than your minimum payments, and you’re not falling behind, then you’ll probably want to continue on the same path you’re on currently.

While building your credit report and your credit score — as well as your life — there’s a good chance you’ll find some debt. And if you’re ready to take the next step in paying down your debt in a simple and money-saving way, it might just be time to consolidate.

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  • How important is it to you for a debt consolidation company to offer financial education resources?
  • Takes your existing debt and try to settle with your creditors for a lower amount. If you pay off the settled amount, your debt will be considered paid in full.
  • Negotiates with your creditors on your behalf.
  • Fee based on a percentage of your total starting debt or a percentage of the debt they save you.
  • Most settlement companies have you create a separate "escrow" account where you will make monthly contributions over a certain amount of time to contribute to your settlement. Once there is a substantial amount of funds to show your creditors, the settlement company will try to negotiate a lower amount of debt.
  • Combines all your debts and creditors into one monthly payment.
  • Allows you to pay one monthly payment to the consolidation company, instead of multiple payments to different creditors.
  • You no longer owe your original creditors; instead you pay one monthly payment to your consolidation company.
  • Consolidation companies can help negotiate lower interest rates on your debts and help lower your total debt payment in the long run. A lower interest rate will lower the amount you owe in the end.
  • Allows you to consolidate all your different debts into one personal loan that can be paid off over time.
  • Can offer borrowers a lower interest rate with a longer payback term (compared to high-interest credit cards or medical bills). This will lower the amount of money required to pay off the loan over time.
  • Personal loan debt consolidation can be an effective way to raise your credit score quickly (within 3-6 months).
  • Borrowers can receive funds from their loan within only a few days.

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