Debt Consolidation : Know How to Consolidate all Your Debts

Are you overburdened with debts? Can’t you handle too many debts at a single time? If this is the case with you, then you might consider debt consolidation to reduce the headache of debts to some extent. Well, this strategy works well with the debts and with credit cards rather than an official loan.

You need not keep paying for several bills. All you need to do is to pay all the merged bills through debt consolidation procedure. This strategy saves you both money and effort. Let’s check out every relevant point related to debt consolidation.

What is Debt Consolidation?

Debt Consolidation is nothing but a special financial strategy to merge up all your credit bills into a single loan. You have to pay off the debt through a single payment with the help of a loan management program.

If you are using credit cards and the credit bills get cumulative, then debt consolidation is going to help you with a single bill to handle. You can easily pay off that single bill. It helps to handle both your time and money.

There are two options related to debt consolidation. You can either take out a loan or you can opt for a debt settlement program. Select that option that suits your circumstances.

Debt consolidation is also termed as bill consolidation and credit consolidation. You can move out of your credit debts as soon as possible. Even it helps to enhance your credit score to a healthy one, as well.

How does Debt Consolidation Work?

You are able to handle unsecured debts like credit card debt with debt consolidation. It decreases the interest rate. So that you have to pay for a lower monthly installment on your credit card expenses.

The working procedure of debt consolidation begins with the calculation of the total monthly amount that you pay for your credit card. This policy adds to the sum of interest, too. 

You have a fixed income, right? Your monthly budget mentions other necessities like food, housing, transportation, utilities, etc. And there is no other way to skip these expenditures. Now, what left amount will you be able to pay for the credit expenses?

If you are really struggling with credit debts, then you can opt for debt consolidation. This is basically a debt management program that requires you to pay an organized monthly payment. You can track the amount of debt left for a basic idea.

You might research the debt consolidation organizations online. Also, try to find out the loan or monthly payment is going to help you more with this.

What is Debt Consolidation Loan?

Mostly, people issue a debt consolidation from a bank, online lender, credit union. A debt consolidation loan allows you to get a loan from these creditors. The loan amount should be large enough so that all the debts can get resolved with the amount.

You need not worry as you don’t have to repay the loan with a lump sum of money. There are simple plans available where you can pay the loan with regular monthly schemes. Basically, the repayment of loan depends on the amount of money you borrowed and the interest rate. You might expect the repayment gets over within three to five years. 

Additionally, the current credit score of yours plays a major role in deciding whether you get a lower interest rate for debt consolidation. That’s why you should always maintain a good credit score. 

If your credit score tumbles, then there is no guarantee that you are able to secure a lower interest rate. Moreover, if the debt consolidation interest rate is not less than the average interest rate paid by you, then debt consolidation is not a good idea for you.

There are chances that you find debt consolidation loans not that much fruitful. For those cases, you can opt for other financial strategies like personal loans or home equity release. All these financial strategies are only useful if they can lower the interest rate on your loan. Contact a financial advisor to discuss your overall credit or unsecured debts. 

What about Debt Consolidation without a Loan?

If you are already under the burden of loans and don’t want another one, then there are options available, too. What you can do is to shift to lower monthly repayments to clear off your debt. But who can help you with this facility?

Credit counseling agencies are always there to offer you a non-profit debt consolidation plan. You need not acquire any loan for this process. These credit counseling agencies partnered with the card companies and thus it will help you by lowering the interest rate. This means that you have to pay a lesser amount of repayment each month.

If you apply for a debt consolidation program without a loan, then you have to provide the agency a monthly charge. Then the agency transfers it to the card company or creditor. The amount of monthly repayment depends on the agreement between the agency and the creditor. You might have to pay for the late fees if you fail to pay the monthly installment on the decided date.

To conclude, this debt management plan is not a quick solution. This plan might take three to five years to get rid of your debt. You might encounter a penalty or other issues if you fail to make a repayment.

Can you Consolidate the Unsecured Debt?

This completely depends on the situation of any consumer. If you are frustrated with your increasing credit card bills and tried every hack to reduce it but all goes in vain, then debt consolidation might bring you some relief. It doesn’t clear off the debt, immediately but can release you from consistent anxiety issues of yours.

You can turn around your financial circumstances with a strong debt consolidation plan. You can again be independent with your money once you avail this debt management plan. This procedure is going to make the payment of credit card bills way simpler. You can either repay the bills along with the repayment for a loan or opt for reduced monthly installments. 

You are going to end up like either one payment or only once in a month, to only one destination or creditor. If you are able to lower the interest rate and so the monthly expenses, then debt consolidation is useful for you. Otherwise, you should look for another financial strategy.

When Can’t you Consider Debt Consolidation?

There are some restrictions if you go to a debt management plan like this. If you don’t do anything to change your expenditure habits, then generally debt consolidation is not for you. You can never meet up with the usefulness of such a financial strategy. 

You should refrain from using your credit cards more often. This is the most primary step that you should look for. Otherwise, the bills don’t tend to decrease, at all. Also, take a note at the following points to make yourself benefitted from credit consolidation.

  • You have to stick to your monthly budget, at any cost.
  • Don’t try to get a new loan when you haven’t paid off the existing ones.
  • Before getting a debt consolidation, always calculate all the fees and interests along with the period of time. Be sure whether it never exceeds your expenditure along with the average interest rate.
  • You need to make the monthly repayments on time. If you have to enjoy the benefits of the privilege without a penalty, then a consistent monthly payment is necessary.

Apply for debt consolidation only if you can perform all the above tasks without any hesitation. Otherwise, there is no benefit to this consolidation.

Alternative Options to Debt Consolidation:

If you have chosen to reduce your debts, then it’s always better to start the process. The sooner you can eliminate your credit debt, the easier you can live your life with your income.

Debt consolidation is one of the early treatment of the overwhelmed situation with debts. If you think that debt consolidation is not going to help you out, then there are two alternatives to this process. Choose bankruptcy to avoid the hazards of debt consolidation. Otherwise, select a suitable Debt Settlement Plan.

Before opting for one of these two mentioned strategies, please take a look at the benefits and risks of bankruptcy and debt settlement.

Benefits of Bankruptcy:

Bankruptcy allows you some pros to handle your financial situation. Here the pros of bankruptcy go as follows:

  • You can give a fresh start. It’s like a second chance.
  • Your all debts get written off through Chapter 7 bankruptcy. The procedure takes only three to six months.
  • You need not be afraid of losing your house, vehicle, and retirement savings.

Risks of Bankruptcy:

Besides the above-mentioned benefits, you have to face some losses as well. Check out what they are.

  • You can’t access your credit cards anymore.
  • Your credit history records this Chapter 7 bankruptcy for ten years. If you opt for Chapter 13 bankruptcy, then it will also remain in the credit history for a minimum of seven years. 
  • Most of your possessions get sold by your creditors to declare you bankrupt.

Benefits of Debt Settlement Plan:

Now, coming to debt settlement, here are the advantages of a Debt Settlement Policy.

  • It can reduce the amount of debt, maximum to 50%.
  • You may avoid going to court as this is a legal procedure to write off the debt.

Risks of Debt Settlement Plan:

You might have to encounter the following losses due to Debt Settlement Plans. 

  • Not every creditor agrees with a debt settlement process. 
  • It worsens your credit score for the upcoming seven years.
  • You need to pay taxes on the amount that your creditor forgave you.
  • You might face an increase in your repayments due to late payment.

After going through every pros and cons of each of the financial strategies, you might choose the best one according to your needs and financial circumstances.

FAQs Related to Debt Consolidation:

Let’s go through some basic queries which are most popularly asked regarding debt consolidation. Hopefully, these solutions help you to handle your situation.

How can I consolidate my debt and pay?

Firstly, calculate the amount of money that you need to pay as the unsecured bills. Add all the credit bills. Next, you need to decide how much you can avail of to pay off these debts. You should focus on that and then eliminate the debt from three to five years, not more than that. 

Next, you have to reach the creditor and clarify everything about the interest rate, the monthly repayment, the duration it will take to clear off the debt, etc. You have to compare this one with the previous cumulative credit bills. Decide which debt consolidation scheme can relieve you.

What are the loans that I can afford for debt consolidation?

The amount of loan depends on the amount of money that is at least required to meet up the credit card bills. You can choose any of the following loans like a personal loan, home equity loans, unsecured debt consolidation loans, etc. 

You might issue a credit card balance transfer policy, as well. But for that, you have to consistently keep a good credit score. Home equity loans can serve you with better interest rates but might be endangered if you fail to make repayments. An unsecured debt consolidation loan may lower interest rate but the period is shorter.

Am I eligible for a debt consolidation loan?

Yes, you are eligible for a debt consolidation loan if you can maintain a good credit score. If you have already failed to attain a good credit score, then you might get in a trap with a bigger debt. 

Am I eligible for debt consolidation without a loan?

Yes, you are. You have to visit a credit counseling agency to issue this scheme. The agency will foresee your income, your monthly credit bills along with your credit score. Then the agency would ask the creditor to lower the interest rates so that you can escape huge monthly repayments. This is not a quick solution and is going to take at least three years to five years to clear off the debt.

Will debt consolidation affect my credit score?

Well, it completely depends on your repayments. If you are able to make consistent repayments, then debt consolidation will have a good impact on your credit score. Additionally, make sure that you minimize the usage of your credit cards. It will help you to decrease the burden of debts on you. 

Also, don’t forget to pay the reduced monthly installment to avoid any kind of penalty from your creditor or credit counseling agency.