Overwhelming debt should not cripple your financial stability. The quality of your life surely depends on the monthly payments you need to make. Sometimes, we end up using too many credit cards. Statistics show that each American adult has about four credit cards and the average US household owes over $16,000 in credit card debt. The numbers are increasing steadily for the last two years, and the overall credit card debt has hit a record high this year. It is over $1 trillion in total and climbing fast.
Several people are opting for payday loans and vehicle (title) loans for making ends meet. Payday loan has become a trending topic among Americans, thanks to the growing crises of credit card debts across the nation. However, these small loans often bring with them a high rate of interest and unmanageable APR. Most importantly, each person has more than one debt and bill payment to cope with each month. It makes budgeting and finance akin to impossible for them. Explore more ways in which these recurring payments might be disrupting your finances right now at nationaldebtrelief.com.
Is debt consolidation the end to your money woes?
The real question is – is there an end to this misery? Can people overcome overwhelming debt to achieve financial freedom? Debt counseling is one way to find out why you are in so much trouble currently and if it is possible for you to manage your monthly payments in a way to make the best of your current situation. However, this process does not offer any financial assistance. You still have to make your payments with your own money. It can again be a problem for many. Several people are looking for a way out of multiple payoffs because they do not have enough liquid assets. Therefore, not receiving financial assistance is just not a solution for them.
Those who can identify with this problem need the aid of debt consolidation. Debt consolidation works best when you have taken the assistance of a debt counselor or a credit counselor in the recent past. Debt counseling can often assist you in the process of prioritizing debts and payments. Once you know which loans are troubling you the most, you can reckon with them the way it is necessary. This third-party payment system will require you to pay the consolidation loan company just once per month. The company eliminates the need to pay multiple creditors over the month. You will experience lower monthly payments and flat interest rates, which is a welcome break from the mayhem of the inconsistent monthly credit card payments and unsecured loan payments.
Debt consolidation is a serious decision
Unlike Debt Management Plans or DMPs, you cannot opt out of debt consolidation loans anytime you want. Therefore, pay more emphasis on counseling and find out if debt consolidation will help you in the first place. Once you start checking for debt consolidation agencies, you will find several online organizations and brick-and-mortar agencies with online services along with several recognized financial institutions that offer consolidation services.
The key to finding the right agency for you is to forget your desperation and be picky. Filter your searches with the help of qualifying criteria at first. Pick the institutions or companies with lenient credit score requirements. Then filter them as per their interest rates and APRs. Make a list of agencies that meet all your required conditions. Then rank them as per client reviews and third-party business site ratings. Reviews and ratings go a long way in determining which agencies are genuine and reliable.
The advantages of debt consolidation
You can expect the monthly payment to become much more comfortable to manage once you consolidate your debts successfully. This payment restructuring process reduces the number of payoffs to just one, and that too at a flat amicable interest rate for a pre-determined period. Contrary to DMPs, debt consolidation loans do not hurt your credit score. Your credit records will not take a hit since representatives will not try to bargain with your creditors for lower rates. The agencies will merely redistribute finances to make the payments most helpful for you.
The risks of debt consolidation loans
There is, however, a catch to debt consolidation. It might not be possible for you to consolidate all your high-interest loans into a single loan at one go. It again brings us back to the importance of debt counseling. The process will help you to eliminate the high interest, high-risk lines of credit. Pay off these loans that cost you dearly, and that will ultimately reduce the amount you pay in interest each year. Also, no matter how enticing it may seem, do not opt for taking out a large sum against your 401(k) savings or your home equity. Debt consolidation is not a solution, but merely a strategy. Failure to pay monthly installments to the debt consolidation company can cost you your home or your retirement savings if you take out a secured loan.
Debt consolidation only works for the cautious
The highest risk of debt consolidation is the temporary relief that debtors experience. It often leads them into believing that their debt and monthly payments are entirely under control. Debtors often fall back into their old expenditure cycles. Not halting the expenses and stopping the active lines of credit will put you back right where you started. Consolidation is the process of converting all kinds of short-term debts into long-term ones. When you use collateral to take out a mortgage loan, you turn it into permanent debt. So, unless you are careful, you will end up opening more lines of credit, and you run the risk of spending a lot more than you would without consolidation.
Debt consolidation loan is often the better option between debt management and bankruptcy. While the other two affect your credit record permanently, debt consolidation helps you to repair your credit and personal financial profile. It lets you take charge of your debts, and it enables you to open new avenues for cash flow. When you are feeling suffocated under mountains of unpaid bills and credit card debts, it is time to check out your debt consolidation options.