People who are in debt have several options open to them if they want to clear their debts. No option is particularly easy, but it depends on how much is owed and individual circumstances as to what the best solution might be.
The best way to deal with debt of a manageable level is to pay it off as and when you can. Putting aside any available income to clear a backlog of debt is not easy, but if you keep your spending to a minimum, you should be able to gradually get on top of any unpaid bills and overstretched credit cards. It may take a long time, but if you persevere you will gradually get ahead.
However, some people will be out of their depth in debt, and feel that they have lost control of the situation. In this case, it may be best to take advice from a debt management company. Although you will have to pay for their services, it can take a lot of the mental stress and pressure out of the situation.
A debt management company will assess your debts versus the available income that you have. The advisor may suggest setting up a debt management plan. Usually this is where the debt management company contacts all of your creditors and works out a repayment plan. Instead of paying each creditor what you owe, you pay the debt management company a monthly payment, which it then redistributes among your creditors. In some cases the debt management company may be able to negotiate an interest freeze while you pay the outstanding debts back. Creditors are usually willing to negotiate with debt management companies more than they might with individuals as it means they have a better chance of recouping their money.
If your debt level is extreme, then the debt management company might suggest a debt consolidation loan. This is where you take out a new loan to pay all the outstanding debt that you have. This will remove the pressure of having to manage a series of debts with different creditors. However, it doesn’t mean that the debt has disappeared. You’ve just put it into one basket and you will still have to make a regular payment to pay it off. On the plus side, the debt consolidation loan will offer more favourable interest rates and a longer repayment period than the average creditor.
The main danger with debt consolidation is a psychological one. Having all your debts effectively wiped clean with a new loan may give you a false sense of security. You may begin to think it’s ok to start spending on credit and store cards again as your outstanding debts no longer exist. However, the new loan still requires paying off and you shouldn’t be tempted to start spending again before you have cleared the debt consolidation loan.
Debt Consolidation Loans: The Benefits
Are you looking a way out of your heavy debt burden? Timely pay-off is an obligation for every borrower. However, if you find it tough to make huge pay-off, you can apply for debt consolidation. It will reduce the size of payback through cut-back of regular installment or interest rate. There are a good lot of benefits that you can gain from debt consolidation loans. Let us have a quick go-through over them.
Reduction in Interest Rate: That is the main attraction of debt consolidation program. It is possible to negotiate with your lender regarding rate deduction. Believe me; all of them are not bad as believed. If they are convinced that you have some genuine reasons to ask for ‘payment shrinking’, then they will surely come forward to your debt rescue. Once the negotiation is successful, the loan payment program will be restructured to help you manage the debt in a better way. You can directly talk with the lender in this regard or hire the service of a debt consolidation agency to do that on your behalf.
Single Monthly Payback: On consolidation, your existing debt is distributed in such a way that you are required to make only a single monthly payback. Debt consolidation does away with the obligation of multiple paybacks to several creditors at no identical interest rate.
Debt Repayment: Your creditors or debt collection agency will issue a debt repayment plan. This plan contains in-detail mention of your previous as well as current debt burden after interest rate reduction. The debt repayment is a clear picture of your standing after negotiation deal and helps you afford the principal pay-off in full plus some interest.
Late Fee Reduction: Defaulting on loans leads to late charges, penalty fees as well as interest rate pile-up. Debt negotiation reduces such extra payment for loan default. In some cases, such payments are completely eliminated.
Good Riddance from Debt: If you make sure to pay a little extra over the minimum on your credit card, it will take lesser time to clear the debt in full. A consolidation program is structured in such a way that you get freedom from debt shackles as quickly as possible. By consolidating your existing debts, you can clear your all dues within 5-6 years otherwise; it may take around 20 years or even more for debt elimination.
Credit Rank Improvement: Loan default, late fees, charged-off accounts leave a negative impact on your credit ranking. The scenario changes when you go for debt consolidation. Once the existing dues are paid off, your credit score shows consistent improvement.
No Collection Calls: Frequent calls from your creditors are more than irritating. But once your name is registered for debt negotiation, there will be no more phone calls from the lenders. Through registration in a debt negotiation program, you give a power of attorney to the consolidation agency. The laws strictly prohibit the creditors from calling you for payback and thus you get a relief from harassment.
Is debt consolidation the right choice?
Deciding whether debt consolidation is the right choice is down to each individual’s own circumstances, the amount they owe and whether there is an alternative like borrowing from a relative. Always seek independent financial advice before taking out a debt consolidation loan.