About Debt Consolidation
The purpose of debt consolidation is to take all your monthly payments on credit cards and loans and combine them into a single payment. The objective is to consolidate debt in order to reduce that payment to an amount that you are able to pay. This is accomplished by paying off the loans and credit cards with one loan that incorporates a restructured payment plan and a more favorable interest rate. The principal owed is not reduced, but the monthly payments are lower because of the improved terms..
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Benefits of debt consolidation
The primary benefit of debt consolidation loans is to provide you with a means to pay down your debt rather than defaulting. This will preserve your credit rating and keep you solvent while you get your finances in order. When you consolidate debt, you simplify your life since you will only have to deal with one loan payment every month. Unlike credit card debt that offers minimum payments with very high, variable interest rates, debt consolidation loans have fixed interest rates and payments. When you consolidate debt, it's easier to prepare a personal budget since you will know exactly how much you owe every month.
You can also set up an automatic withdrawal from your checking account to save time, postage, and late payment penalties. With debt consolidation loans, you only have to deal with one bill which eliminates the stress of dealing with multiple creditors. If you need help with debt consolidation, you should consider obtaining the assistance of a debt consolidation company.
Problems with credit card debt
It's easy to pile up credit card debt, especially if you have several cards with high limits. These cards entice you with minimum payments that seem attractive, but are designed to keep you perpetually in debt. You are charged an exorbitant interest rate while the principal can take many years to pay off. If you continue to incur more charges while making the minimum payments, you'll never get out of debt and the finance costs will grow exponentially. Eventually the interest expense alone will exceed the cost of all the goods and services you purchased.
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Solutions to credit card debt
he best way to avoid credit card debt is to stop using the cards, except in emergencies when you have no cash. When you do use a credit card, pay off the balance in full to avoid finance charges and late payment penalties. If you are using multiple credit cards on a regular basis, credit consolidation would help to keep better track of what you are spending. Find one or two cards that have no annual fees and the lowest interest rates possible. Use one of those to consolidate debt by paying off the other cards which should then be destroyed.
Credit consolidation will likely save you money on the fees imposed by the credit card companies. By limiting the number of cards you use, you can consolidate debt and simplify payments with credit consolidation.
Credit card debt is a good candidate for credit consolidation and debt settlement. A debt consolidation company can assist you with navigating the process for obtaining debt consolidation loans.
Unlike debt consolidation, debt settlement is a way to reduce debt by paying less principal than you owe, and having the creditor permanently forgive the unpaid balance. It's an option for those who have unsecured debts such as credit cards and signature loans. This approach is attractive to unsecured creditors because it ensures that they will get at least some of the money they are owed, rather than run the risk of getting nothing. Creditors holding collateral for secured loans typically won't settle debt because they have the option of seizing the collateral if you don't make your payments.
The most common form of debt settlement is a lump sum payment to the creditor. This is only a viable option for debtors who can raise sufficient cash to make a settlement offer. Credit card companies that have been hit hard by the recession have been receptive to debt settlement rather than risk a total default by the debtor. If you have missed several months of payments, this only exacerbates their problem and makes it less likely that they will ever be paid anything. In addition, they can't repossess whatever you bought with the credit card to offset potential losses. Creditors are motivated to get bad debts off their books, and debt settlement is one way to accomplish that.
While debt settlement will save you money, there's no way to tell how much until you negotiate with the creditor. Make an offer that's less than what you are capable of paying, with a goal of eliminating between one-third and two-thirds of your debt. That's only a guideline, and there are cases where people have done even better.
It costs money for creditors to go after you for unpaid bills. For them to do this, it has to be worth their while, with a reasonable expectation of payment. One option they have is to sell your debt to a collection agency for a fraction of what you actually owe. In that case, it puts you in a much better position to lower your debt since the collection agency only needs to recover more than they paid for your account.
Budget and debt counseling
If you are having trouble maintaining a budget and getting your bills paid on time, you should consider utilizing a reputable firm that specializes in counseling debtors. They can assist you with analyzing and setting up your personal budget. They can also advise you on how to consolidate debt through debt consolidation, negotiate a debt settlement, and credit consolidation. A debt consolidation company has the expertise to help you establish a plan for getting out of debt.
A credit counselor will review your personal circumstances and explain how credit consolidation and other debt management programs would benefit you. A bankruptcy remains in your credit file for ten years, so protect your credit rating by taking proactive action to solve your debt problems.