I Want to Consolidate My Debt
Many people turn to debt consolidation for its convenience and peace of mind. Debt consolidation helps you get out of debt by combining your debt payments into one simple payment each month. There are a number of ways to consolidate your debt, and debt consolidation provides a few advantages. However, there are also a few downsides to debt consolidation.
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Debt Consolidation Companies
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Debt consolidation companies help you organize a debt consolidation and payment plan. Some are nonprofit, while others are not. The main thing to look for in a debt consolidation company is whether they are accredited by the Better Business Bureau, Association of Independent Consumer Credit Counseling Agencies or the National Foundation for Credit Counseling. When you work with a debt consolidation company, the company works on your behalf to reduce interest rates and fees. You pay a set amount to the company each month, and the company disperses that money to your credit card companies and other debts that apply.
Use a Credit Card
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Another way to consolidate your debt is to open a new credit card with a low interest rate and a high enough credit limit to cover all your debt. Many credit card companies offer introductory interest rates of zero percent for a set amount of time, like a year. Transfer all your debt to the new card, and pay it off aggressively while saving money on interest. You might need to do this a few times with different cards to keep your interest rate low while you pay off the debt.
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Other Ways to Consolidate Debt
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There are a number of other ways you can consolidate your debt. For example, you can take out a home equity loan, personal loan from a bank or a loan from a friend or family member to pay off all your debt. Then you just need to pay back the loan. Loans often have lower interest rates than credit cards, so it will save you money over time. You can also borrow against your life insurance policy or retirement account. Or, you might want to call the creditors and lenders you owe money to and renegotiate your interest rate, debt amount and payment plan.
Advantages of Debt Consolidation
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The primary advantage of debt consolidation is that your payments are easier to manage, because you only have one or a handful of payments each month, and the payment amounts are usually the same. Also, lower interest rates save you money, helping you get out of debt faster. Debt consolidation plans also give you an estimated date when you will be debt free, which provides peace of mind from the stress of being in debt. Becoming debt free improves your credit score and overall financial life. The money you used to pay debt can go to savings or investments.
Disadvantages of Debt Consolidation
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Debt consolidation does come with some disadvantages. In some cases, your credit score may take a hit while you work to get out of debt, especially if you use a debt consolidation company. Also, you might not qualify for any new loans or credit cards while you are paying your debt off. Also, debt consolidation does not always fix the bad habits that might have gotten you into debt in the first place, like overspending and poor money management. In fact, if you dump all your debt into a home equity loan, then drive up more debt as you pay off that loan, you are in worse shape than when you started out.
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References
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