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Debt Consolidation
Are you feeling stretched by credit card bills,
loans or their high-interest payments? Debt consolidation
may be an option. .
Restructuring your debt with new lower monthly
payments and interest rates without negatively
affecting your credit rating sounds almost too
good to be true. However if done correctly it
can be a good way to get out of debt. It can also
make your financial situation much worse if you
are not careful. You bundle your multiple bills
into one payment, save money, and have spending
room to spare.
Advantages of debt consolidation
- Lower interest rates
- one monthly payment
- Reduction or removal of penalty charges
- Obtaining a payment plan
Disadvantages of debt consolidation
- Paying more total interest charges over the
longer term of repayment.
- Risk of getting into further debt and/or
losing collateral (home, car, etc.)
After consolidating your debts, it is crucial
that you do not use your credit cards again to
prevent yourself from getting into further debt.
Two Types of Debt Consolidation
There are two types of debt consolidation: a
debt consolidation loan and a debt management
plan. You can either get a debt consolidation
loan to lower your rates and payments or use a
debt management programs letting a third party
deal with your creditors.
- Debt Consolidation Loan
A debt consolidation loan is any kind
of loan used to lump all your debts into a single
entity. You are then paying much less in interest
and only paying one bill. Although the interest
is lower you generally pay more interest over
the life of the loan
To get a debt consolidation loan you need to
get a get a home-equity loan or a personal loan.
- Debt Management Plan (DMP)
A debt management plan (DMP) may work for you
if you need to consolidate your bills and get
out of a debt crunch. A debt management plan
is not a loan but a process where a credit counseling
agency negotiates with your creditors to obtain
a lower monthly payment extending over a period
of time to satisfy all of your current accounts.
Then you send the agency one payment each month
and the agency uses your payment to pay your
creditors.
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