Top Ways to Consolidate Your Debt

With the average American home owing at least $15,000 in credit card debt and over $30,000 in student loan debt, it’s no surprise that the topic of debt consolidation is one that’s attractive for many. While consolidating your debt is among the most effective ways to eliminate this debt, with several options it’s easy to be confused. Before delving into the world of debt consolidation, take a few moments to familiarize yourself with the top ways you can consolidate debt.

Personal Loan Consolidation

The entire concept of consolidating debt is to take multiple avenues of debt and lump them into one single monthly payment. While there are many different ways to accomplish this, taking out a personal loan is among the most popular. While taking out a low-interest loan can save you potentially thousands of dollars over the life of the loan, this form of consolidation is only appropriate for those with decent credit scores. The biggest challenge many consumers face is qualifying for a low-interest loan large enough to cover all other debts. The primary reason for this is if you have a decent amount of debt or if your credit score has been struck down due to late or missed payments (see more examples here).

Credit Counseling Consolidation Service

Although counseling agencies aren’t able to actually consolidate your debt, they do offer DMP, or Debt Management Plans. While these plans do have some disadvantages, such as a negative remark on your credit report, they are an effective way for consumers with bad credit to consolidate their debt. If you’re interested in enrolling in a DMP, then you’ll be basically paying the agency a monthly payment. After a period of time, typically 30 to 60 months, the amount collected is enough to completely pay off all debts. One of the biggest benefits of this form of debt consolidation is its ability to stop creditor and collection calls. While your account may still feature negative remarks, when you’re enrolled in a DMP creditors are aware of your willingness to repay your debts.

In a general sense, attaining a debt management plan from a credit counseling agency is an ideal situation for those who are unable to obtain a personal loan or a credit card consolidation loan due to bad credit, and are unable to repay their debt in a timely fashion by themselves. Therefore, a counseling agency can provide the extra help you need to stay afloat while systematically reducing your debt.

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Biggest Debt Consolidation Lies

With the average American household holding nearly $16,000 worth of credit card debt, according to the Federal Reserve, there’s no surprise that the act of consolidating your debt is quickly becoming a go-to for those suffering from high monthly bills. While debt consolidation can be an excellent answer to your financial problems, there are several lies consumers often believe when dealing with debt consolidation companies.

Lie #1: Debt Settlement is Your Best Option

If you’ve been introduced to a debt settlement program, you should carefully monitor the specifics of the term. In most cases, debt settlement programs should be your last resort. The main reason for this? Utilizing such methods is considered unethical as instead of your money going directly to the creditor, it sits in an account owned by a third party. Often times, this form of debt consolidation has various clauses that state if you miss one payment within the settlement, all money in the account is forfeited and the debt consolidation agency retains all funds. Moreover, whenever you engage with this type of debt consolidation service, your credit report takes a serious hit. While you may not have exceptional credit to begin with, you should avoid any consolidation methods that cause further harm.

Lie #2: You Require an Official Program to be Debt-Free

Perhaps one of the most intense lies debt consolidation companies tell is requiring an official consolidation program to become debt-free. This is nothing but a lie. While there are official programs designed to assist your ability to repay debts, there is nothing in laws or regulations that require you to enroll in such a program to become debt free. If a consolidation business states this as a fact, thank them for their time and consider speaking with your creditors or collection agencies directly. Often times, you’ll be able to negotiate reduced monthly payments and interest rates without the use of a third party consolidation company.

Lie #3: You’ll Always Save Money With Consolidation

Another substantial lie many consumers must deal with when communicating with debt consolidation companies is you’ll always save money when dealing with consolidation programs. While this can be true for certain program, most consolidation programs require fees to operate. If the consolidation company tells you there are no “out of pocket” fees, then more than likely all fees are collected during the actual consolidation process. For example, the company may add a small fee to each payment to recoup their expenses. While this isn’t an “out of pocket” expense, you may not be saving as much money as you once thought. If you are interested in debt relating to your mortgage score, visit your650score.com.