Many Americans are in debt and
more are going into debt every day due to bad spending habits, unemployment,
illness and high costs of gas, food, clothing, utilities and housing. Many
Americans don't have enough money to pay even basic necessities and have to
resort to using a credit card to buy food and gas. This has caused many
Americans to owe thousands of dollars in credit card debt. Luckily there are
many options available to eliminate or reduce debt. One option that can be used
to eliminate or reduce debt is debt consolidation. Debt Consolidation can be
done on your own or by using a debt consolidation, debt management company or
bank.
Debt Consolidation works by
making one monthly payment to a debt consolidation company which is disbursed
or divided among your creditors. This monthly payment is usually lower than the
total of your individual creditor accounts.
Debt
consolidation through a debt consolidation company usually requires payment of
a setup fee and/or monthly fee. Debt consolidation reduces the monthly bill, lowers your monthly interest
rate and halts charging late fees.
This can be done by: taking
out a home equity loan, a home equity line of credit or a debt consolidation
loan from your bank. Using your home's equity will also require payment of fees
for the home equity loan or home equity line of credit.
The benefits of using debt consolidation are: reduced monthly payments, reduced finance charges, elimination of harassing calls from creditors, convenience of sending in one monthly payment, pay debt down faster, and freedom from stress, worry, and anxiety causes by being in debt. However, use caution when consolidating debt. Start with credit unions that have more favorable loans and terms and find the option that is right for you.
The benefits of using debt consolidation are: reduced monthly payments, reduced finance charges, elimination of harassing calls from creditors, convenience of sending in one monthly payment, pay debt down faster, and freedom from stress, worry, and anxiety causes by being in debt. However, use caution when consolidating debt. Start with credit unions that have more favorable loans and terms and find the option that is right for you.
Debt
consolidation should only be used under certain circumstances:
- As a last resort
- If you owe $10,000 or more in debt
- If you have high interest rates and high monthly payments
- If you are having difficulty making payments
- If you are getting overwhelmed with paying multiple debts
- If you were unable to negotiate a lower interest rate
When shopping
around for a debt consolidation loan consider the following factors:
- Fees
- Reputation of the company
- Interest rate
- Terms of loan
- Length of loan
- Monthly payment
- Fine print
Consider the following
risks:
- Once you signed up for a debt consolidation loan you can’t change your mind.
- You may have to pay high interest rates and fees if you have bad credit.
- The repayment plan may be longer which will cause you to pay more interest over the life of the loan.
- If you miss a payment you may have to pay penalties and your interest rate could be increased.
