Most people don’t have just one kind of debt; they may have outstanding student loans, credit card debt, a car loan, etc., and they are paying off several different creditors simultaneously.
There are two factors that make it difficult for consumers to pay back their debt: high interest rates, and the inability to organize their payments.
Consumer debt typically carries high interest rates that make loans difficult to pay off.
In fact, most people can only afford to make their minimum payments each month, which means that they’re only paying off the interest on their loan – not the loan itself. Individuals with multiple creditors may struggle with staying on top of payment schedules, amounts, and methods. Missing one or two payment cycles can have immediate consequences, and result in a decrease in your credit score or an increase in the interest rates on your debt. Given the challenges, how is it possible to ever get out of debt?
There are many kinds of debt help, with solutions to virtually every type of debt problem. Debt consolidation can be a viable option for resolving unmanageable debt, but there’s no one-size-fits-all approach. Depending on your circumstances, there are various debt consolidation strategies available – here is how they work:
Debt Consolidation Loan
A debt consolidation loan can be taken out to pay off many smaller debts that are otherwise onerous to repay. Essentially, you take out a new loan with which to pay off your old loans.
The benefits of consolidating debts, is that your new loan may have a lower, more manageable interest rate, so that your monthly payments will have a noticeable impact on your overall balance– getting you out of debt faster. With only one payment schedule to manage, you’ll also find it less stressful to keep your finances organized, thereby reducing the risk of endangering your credit history and overall financial standing.
Balance Transfer
Transferring a credit card balance is a type of consolidation, but it doesn’t require a loan. Instead, credit card debt that has accumulated on a high interest credit card can be transferred to a lower interest credit card, making monthly payments less burdensome. This option is suitable for those who only have credit card debt on one card, and who qualify for a low interest credit card.
Credit Card Consolidation
Multiple credit cards can be paid off with a consolidation loan (see above), or via a credit card consolidation, in which high interest credit card debt from several cards can be put on to a single card. This can mean lower interest payments, but the real benefit is in streamlining your payments from multiple service providers to just one monthly payment. This strategy is ideal for consumers who only have credit card debt, and who qualify for a low interest credit card.
To apply for debt consolidation of any kind, you will need a satisfactory credit history and a regular income. However, if a credit score is less than perfect, assets can be used as security or collateral, or a family member in good financial standing can act as a guarantor on your application. Applying is free, and it will take less than 24 hours for your application to be reviewed.
While there are many ways to manage debt (home equity loans, re-financing, personal loans, etc.), the point is that debt doesn’t have to permanently cripple your finances.
Debt consolidation has both pros and cons to consider, but for many, it’s an elegant solution to juggling multiple debts, and the first step on the road to financial freedom.
Just remember, debt consolidation can be really helpful but it doesn’t get rid of the debt altogether. To achieve that, you have to work hard, sacrifice where you can, and stay focused. Paying back debt is hard, but totally worth it! Good luck.
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