Consolidating Your Debt – When It Makes Financial Sense
Debt consolidation is simply a method for creating an umbrella under which to place
all outstanding debts into one new large loan or repayment program and proceeding with payoffs. You can do this the following ways.
Consolidating debts into a single loan To do this you will have to borrow enough funds, to repay all your existing financial obligations. You can borrow the money from a bank, credit union, or even from individuals like friends and family. By doing this you are left with a single loan, which will make managing your finances easier. It clears the deck, so to speak, of the old debt load. The new loan is bigger than the old loans you've just retired. Depending on the interest rate and duration of your new loan, you may ultimately pay more by consolidating your debts. This can also be caused by a large loan principal, which will take longer to repay. Even if you end up paying more, debt consolidation may allow you to improve your credit score and get on the path of financial health. Consolidating your debt will make budgeting easier, as you will deal with one single payment monthly.
The debt consolidation program route You can do this via third-party, which can be a non-profit organization. The third party is able to negotiate with your debtors to reduce interest rates, outstanding old interest and even the balances due. They can also propose a debt settlement plan, in which your creditors accept lower repayment installments. Living within or below your means is a key when trying to get rid of debt. If you don't do that your debts will snowball again, and you may end up in a worse financial shape than you started.
Do-it-yourself approach to debt consolidation loan If your credit record hasn't been tarnished yet, you can try obtaining a new credit account with sufficient credit to repay your existing obligations. It's likely that you won't be able to access new credit, if you already have a bad credit history.
However debt is repaid, debt consolidation means that you bring all debt into a new form. Old debt is paid off but replaced by the new debt account.
Consolidating Your Debt When It Makes Financial Sense
By: Arvel Bert
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