According to the Federal Reserve report, the Americans have accumulated $1.029 trillion credit card debt until the year 2017. Most of the households have accumulated $8,731 debt and are paying a higher interest rate (20% and more). In addition to this, people are accumulating private student loan to fund higher studies. The debt load is becoming overwhelming day by day. People are trying to get rid of their debts.
If you’re one of them who is struggling to pay off multiple debts and unable to meet both ends, then you should consider a solid debt solution. If you are facing difficulties in making debt payments along with household cost, then you can consolidate your debts. Considering debt consolidation can be a good idea to get out of the several credit card debts including other unsecured debts like medical debt, private student loan, and other unpaid household bills. It helps to repay all the outstanding bills live a debt free life.
Why should you consolidate your unsecured debts? Well, there are many debt relief options that you can consider. You can settle your debts, follow a DIY debt repay method, and enroll in a DMP to get out of your debts.
But, considering debt consolidation can be beneficial in many ways.
Here you go:
How does a debt consolidation program work?
Before explaining the benefits of consolidating multiple debts, you should understand how does it work?
Debt consolidation can be a suitable debt relief solution for you. Because, when you enroll in this program, the company provides a debt consultant to you who scrutinizes your financial condition and reviews the total outstanding debts that you have to repay.
The debt consultant will sit with your creditors and discuss the entire matter with them in details so that they may understand your financial condition and agree to reduce the interest rate on your outstanding debts. It is very important that the debt consultant should have proper negotiation capability so that he can convince your creditors for it. Thus, with a low-interest rate, you will find it much more convenient to pay off your credit card debts.
Some benefits of consolidating debts
Debt consolidation is a process of merging multiple debts into a single monthly payment. It helps you to repay your multiple debts easily. Here are some other benefits of consolidating debts that you should understand.
You can reduce the interest rate on your debts
One of the main advantages of a debt consolidation program is that you pay a reduced interest rate on your outstanding debts. With the help of this facility, you get a suitable opportunity to pay off your outstanding dues with ease.
You need to make a single monthly payment every month
Debt consolidation program offers you to make a single monthly payment even when you have multiple debts to pay off.
You can boost your credit score
If you have huge credit card debts that you need to pay off to the credit card company, your credit score will get hurt. Since you repay the whole debts, it will not affect your credit score negatively. Thus, you should consolidate your debts and repay the debts in full to become an owner of a good credit score over time.
How can you consolidate debts on your own?
You can consolidate your debts without enrolling in a debt consolidation program. How?
Here you go:
Take out a debt consolidation loan
To consolidate debts on your own, you need to take out a consolidation loan. With the help of the new loan, you can repay all your unsecured debts. Now, you just need to manage the new loan. Don’t miss a single monthly payment on the new loan. Try to repay the loan as soon as possible. However, you should try to take out a low-interest rate debt. Otherwise, you may end up paying more.
Consider balance transfer method
You can also consolidate your debts by transferring the balance to a new credit card with a lower interest rate. Some credit cards come with a 0% APR for balance transfer for a limited period. You should repay the debts with the offer period. Otherwise, you will end up paying a higher interest rate.
Take out a flexible personal loan
If you are unable to get a consolidation loan with a lower interest rate, then you can try to get a personal loan that comes with a lower rate and flexible terms. You can ask your family or friends to get such a loan. Some financial institution offers a low-interest rate loans to people with poor credit score. However, you should explain the reason for having a poor credit score. Try to repay the loan within time.
Tips to remember before consolidating debt
Well, accumulating debt is easier. But repaying the debt can be a difficult task for people. Only by practicing good financial habits, you can be prepared to manage a debt repayment strategy.
Here are some tips that you must follow before taking a plunge into the debt consolidation process.
Start saving money as much as possible
Consolidating debt means you are repaying the total debt with a lower interest rate. So, you should be prepared financially to make the monthly debt payments every month. So, follow a budget to set aside money to save money.
Boost your credit score
To get a lower interest rate consolidation loan, you need to have a good credit score. So, before thinking about consolidating multiple debts, try to upgrade your credit score. Review your credit report to know whether or not there is any mistake. If you find any mistakes, dispute it with the 3 major credit bureaus. Also, stay within your credit limit and pay the credit card bills in full and within the time to increase your credit score.
Lastly, don’t ignore your debts, before it
turns into a serious problem, you should get rid of it. If you are unable to
manage your debts, then you should find out a reputable debt relief company to
seek help. Remember seeking help from a professional debt relief company is
better than tapping your retirement fund or home equity to get out of debt.