Being in debt is a pretty stressful situation – there are no two ways about it. Even if you’re working day and night to manage your money, paying off a high-interest rate every month can make it challenging to reach your financial goals.
It doesn’t matter how much you owe, it can take years to pay off your debt completely. And by that time, a significant amount of your life would’ve passed by, leaving you with practically nothing to enjoy.
But there’s a way not to let this situation get its claws into you: debt consolidation. It’s an effective way of dealing with more than one debt payment.
Since debt consolidation works differently for everyone, it’s best to equip yourself with relevant knowledge before heading into unknown territory.
Let’s see what it’s all about.
What Is Debt Consolidation?
Debt consolidation is the process of merging multiple debts into a single payment, making it easier to keep track of your finances. Rather than making several payments at the end of every month, you only have to make one.
Generally, it includes the following debt types:
Auto loans
Medical debt
Student loans
Payday loans
Credit cards
Personal loans
On paper, it sounds convenient enough: getting one big loan to cover all your smaller ones. However, that big loan comes with longer payment periods, added fees, and, sometimes, a higher interest rate.
Therefore, it’s wise not to jump into it straight away without considering your current financial situation.
(Also Read: What Are the Best Debt Relief & Debt Consolidation Programs? )
Are There Different Types of Debt Consolidation?
Yes. There are different types of debt consolidation, and each of them comes with its own benefits.
Consolidating your debts means you will have to pay comparatively small interest rates to a single lender instead of high-interest rates to multiple ones. It’s an effective method for individuals who struggle with controlling finances.
Debt Consolidation Loan
Debt consolidation loan is the most basic type, as we’ve discussed earlier. You consolidate multiple loans into one fixed monthly payment. Once you apply for it, you’ll have between 1 to 10 years to pay back the amount, depending on how much you owe.
As for how much you can borrow, again, it varies. But some companies can pay up to $50,000. So, if you prefer a fixed payment schedule, a debt consolidation loan would be the best option for you.
Balance Transfer Credit Card
Specifically designed for those with credit card debts, a balance transfer credit card can help pay your debt at a lower interest rate.
It works pretty much the same as a debt consolidation loan: several high-interest debts are merged into one low-interest debt. One of the most beneficial things about this type is that several debt relief consultants offer an introductory period.
During that time – anywhere between 12-21 months – you won’t be charged with the annual percentage rate (APR).
So, if you manage to pay off most or all of your debt during the introductory period, you can save thousands of dollars. And that’s why it’s best for borrowers who can afford to settle credit card debts quickly.
Debt Consolidation Program
People often interchange debt consolidation loan with debt consolidation program. While yes, both are debt relief service plans designed to help pay off your loan, how they function differs.
For instance, the former type combines several debts into one. On the other hand, the latter negotiates with your creditor on your behalf to lower the owed amount.
Of course, you can try your hand at negotiating yourself, but it won’t do you much good. And the reason is that dealing with creditors requires industry expertise and strong negotiating skills.
Of course, you can try your hand at negotiating yourself, but it won’t do you much good. And the reason is that dealing with creditors requires industry expertise and strong negotiating skills.
When Should I Consolidate My Debt?
As we mentioned earlier, debt consolidation works differently for individuals. So, the answer to this question depends on your financial situation.
That being said, you should especially consider consolidating your debt if:
You’ve got a good credit score
You prefer monthly payments
You want a fixed rate
You can repay the loan
You have to pay student loan
How Do I Get a Debt Consolidation Loan?
After considering all underlying factors, if you decide debt consolidation loan is right for you, here’s what you should do:
Make a list of your outstanding debts.
List the total amount, interest rate, and monthly payment.
Research different debt consolidation loan companies.
Apply for a loan.
Apply for a loan.
Apply for a loan.
Before signing for debt consolidation, remember to review your financial situation meticulously. It’s a big decision – one that shouldn’t be taken without proper research. And, if at any point, things begin to elude your sense of reasoning, remember to seek help from Debt Free Life Inc.
Our specialists will assess your condition in detail before suggesting useful solutions, ultimately resulting in you living a debt-free life.