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How to Consolidate Your Debts

For most American citizens, being in debt is a way of life. We tend to take out loans to pay for schooling, to buy vehicles, to purchase houses, and for a number of other purposes. In fact, most single Americans carry in excess of $10,000 of debt, with a good chunk of that debt being from credit cards. Regardless of the particular type of debt you carry, the fact remains that if you are having trouble making your payments and feel as though you are drowning in debt, then it may be time to explore some assistance options.

If simply working with your creditors and adjusting your spending budget is not enough, then you may want to look into the option of debt consolidation. This tends to be a viable way not to reduce the amount of the principal balance that you owe on your loans, but to potentially lower your interest rate and make your repayments much more manageable in the process. As a result, you can even save hundreds or even thousands of dollars in interest payments over time. Plus, you will be able to pay your debts off in a more timely manner.

What is Debt Consolidation?

Essentially, debt consolidation involves taking out one loan to pay for all of, or a chunk of, your current debts. Of course, you may be thinking “what is the point of taking out another loan just to pay off my other loans?” This is a fair question to ask.

The way in which debt consolidation can be a better option, even if it does mean taking out a new loan, is the fact that consolidating your old debts into one under one interest rate can save you a huge chunk of money in the long run. For example, if most of your debts have high interest rates on them right now, perhaps as a result of late payments and other penalties, then a debt consolidation loan with an interest rate that is lower than the average of your current debts can save you a lot of money. Of course, this all depends on the interest rate of your consolidated loan in addition to the total balance that you owe.

Consolidation can be a viable option for a number of different loan types. This includes student loans, credit card debt, car loans, and much more. However, if you want to have the best chances of being successful with debt consolidation, then there are a few steps that you should take.

Work with Experts

Rather than blindly applying for debt consolidation programs, it is generally recommended that you speak with a professional. This way, he or she will be able to assess your specific financial situation and then figure out exactly what your best plan of action would be from there.

Once you are ready to go through with the consolidation process, it will be in your best interest to shop around in order to find a loan that is right for you. Be sure to crunch some numbers and figure out what your monthly interest payments are alone per month at this point, and ensure that the interest rate of the consolidation loan is less than that. Otherwise, you may just end up wasting your time and hard-earned money.

Keep in mind that you will still need to go through a drawn-out application process and will most likely need to continue working with a consolidation company along the way. This is especially true if you have credit card debt that you are looking to pay off, as you will need to get your creditor to agree to the terms of your consolidation. Often times, this is best negotiated and agreed upon by a professional, which is why choosing a quality consolidation company is important.

Overall, debt consolidation can also have a negative impact on your overall credit score, but it is nothing that you cannot build back up over time. Just be sure to make timely payments on your consolidation loan. This should not be too difficult, as you will now only need to worry about making one monthly payment as opposed to several of them.

Resources:

Here is a list of resources that can help with debt from reclaiming mis sold financial products, budgeting and general ways to save/reclaim money.

  • Have I Got PPI ? – Service by Have I Got PPI UK helping people reclaim the millions in compensation from mis selling payment protection insurance by the big lenders. Have I Got PPI UK also provide a free ppi calculator so you can work out how much you could be owed.
  • Step Change – UK Debt Charity that helps people who are in debt. They have a dedicated debt consolidation page.