What to Know About Debt Consolidation
Even in the best of situations, managing debt is stressful and it can quickly become increasingly complicated as individuals struggle to manage multiple overdue balances and work with different creditors. As accounts become difficult to keep track of and interest continues to compound on unpaid bills, it can be easy to feel like the situation is out of control. Fortunately, options such as debt consolidation can help individuals regain control and begin the path to being debt-free.
Know Your Options
There are a few different methods to consolidate debt, in order to make the best decision for your circumstances, it is always best to be informed.
One of the most popular ways to consolidate debt is to transfer the balances of several higher-rate credit cards to a card with lower fees and (ideally) a zero percent APR introductory rate and a lower, more favorable rate after that. Borrowers can take advantage of this grace period to take advantage of paying down the principle of their debt.
A second common form of debt consolidation is to take out a loan large enough to pay off multiple creditors at once. Once your multiple bills have been consolidated into just one monthly payment, a borrower will not only have a much easier time keeping track of payments but could potentially save hundreds or thousands of dollars in interest. A loan may be obtained from your financial institution in the form of a personal loan or Home Equity Line of Credit or can be provided through debt relief companies.
Always Remember to be Mindful
While debt consolidation is a smart solution for many, it’s not for everybody. For example, it is primarily for those who have unsecured debts, such as credit or retail cards. If most of your debt and liabilities include tax debt, unpaid child support or old parking tickets these plans won't help. Borrowers should also be sure that they will be able to make the payments on the new card balance or loan they have taken out – this includes reviewing the details of the product agreement and interest rates. To help combat high interest rates, choose your lender wisely. Working with a financial institution you already have a relationship with can help ensure a more favorable loan agreement.
Debt consolidation also is not the end-all-be-all to financial troubles. As you consolidate debt, the credit cards and store cards that you’ve paid off could still remain open, which makes it easy for to run up new bills, on top of your consolidation loan debt. Consolidating debt also does not address underlying spending and financial problems. Because of this, those considering consolidation should also seek financial counseling for long-term success.