Credit card debt seems to be growing in the United States. American families are burdened with overpowering debts and they need to pay thousands of dollars in terms of interest throughout the year if they make just the minimum payment. One most popular way of getting out of credit card debt quickly and surely is by opting for debt consolidation. With the help of debt consolidation, you would be typically using all the proceeds of your loan for paying off all your existing creditors.
Rewards of Debt Consolidation
By consolidating your multiple credit card debts into one single loan, you would enjoy three main benefits. They are:
A Lower Rate of Interest: Debt consolidation is usually accompanied by lower interest rate and that should be taking off years of debt repayment and also, save a substantial amount of money. You simply require making sure that the APR on this new loan is relatively lower as compared to the APR on your already existing debt.
A Much Easier Way of Paying: When you have multiple credit cards, it becomes quite daunting to manage all the accounts. Thanks to the debt consolidation loan, you just need to make one single payment every month. However, the APR seems to be the most critical consideration and you must necessarily avoid paying a higher rate of interest just for the convenience of debt consolidation.
Higher Credit Score: If your credit cards are maxed out, your utilization ratio would be very high. We know that this ratio would be having a huge negative or adverse impact on your overall credit score. Simply by paying off your credit card debts with a debt consolidation loan, you would be efficiently dipping the consumption on all your credit cards. As per a study conducted by Lending Club, people who used a personal loan for paying off credit cards witnessed an increase of credit score on an average by 21 points that too, within just three months of the personal loan. The most effective way of boosting your credit score is by completely eliminating your entire credit card burden.
Debt Consolidation: An Easy Affair
Debt consolidation is a simple process. Here are some steps involved in the process. It is an expedient way of getting out of debts.
- Figure out Precisely What You Require: Determine exactly how much loan amount is required. Add up all that you owe accurately and that is precisely what you require at this point to borrow.
- Decide What Your Loan Repayment Length Should Be: Different firm would be offering different repayment periods. The loan term should be decided according to how much you could afford to pay every month.
- Examine the Fees: You must carefully understand all the fees involved. Some companies may charge origination fees for people who are taking out a personal loan. It is actually a charge meant for administering the loan. There could be prepayment penalties or charges. Understand all the implications of different fees and penalties meticulously. Do not choose a company that asks for any fees upfront.
As per https://www.forbes.com, “Upfront fee was a major issue with debt relief companies. Some were charging for services they had not performed and keeping this money without ever settling the debt. In 2010 the FTC banned the practice of charging upfront fees, however, it doesn’t apply to all settlement companies and there are cases of companies doing it.”
- Examine Your Rate: You may do adequate research and do the necessary comparison. Opt for the company that offers you a lower interest rate.
- Apply Online: The entire application process would just be taking a few minutes only. You could apply online or via mail or simply over the telephone.
Debt Management Programs To Avoid
Credit card balance transfers, personal loans, and home equity loans are excellent tools provided you are having a good income, excellent credit, and you are simply thinking of paying off your existing debts faster. However, if you are having a tough time paying your bills timely, you would be tempted to opt for debt management companies.
However, some debt management companies would be using marketing jargon that makes them typically sound like debt consolidation loans. However, they may tell you to pay them instead of paying the credit card companies. These companies would be holding the money in basically an escrow account. They would not be paying your credit card bills. As such, your accounts are compelled to become delinquent. Moreover, your credit score is sure to be adversely impacted. You must choose a reliable debt consolidation company and understand their terms of the agreement. Read the fine print carefully. Browse through reliable and reputed sites such as https://www.nationaldebtreliefprograms.com to learn more about perfect debt relief solutions.
The Risks of Debt Consolidation
By using debt consolidation, mathematically you would be putting yourself in certainly a better financial position so that you could get out of all your existing debts faster. All you need to do is consolidate your multiple debts into one single personal loan at a relatively lower interest rate to pay off your multiple credit card debts faster.
However, debt consolidation involves huge risk. Once you successfully pay off all your outstanding credit card debts, there is a possibility of you getting tempted by an array of fresh new credit. If you have been splurging and leading a reckless life which has brought you to this financial disaster, it could be a really dangerous proposition to generate more spending power. You need to remember that you simply cannot borrow your way out of your existing debts.
According to financial experts, debt consolidation is actually a ‘con’ simply because you are misled into believing that you have done something concrete about your debt issue. In reality, the debt is still very much there and so are your frivolous spending habits that triggered it in the first place. Remembering that with debt consolidation, you have just moved or transferred your existing debts, could prove to be fruitful in the long run.
Conclusion
You could reap the immense benefits of debt consolidation provided you are practical enough to know and understand your real financial condition. You need to find out the root cause of all this evil: the reason why you are in such a debt trap. Once you have identified the reason, try your best to rectify that. You must essentially modify your lifestyle and most importantly, spending habits. You could soon see the difference and enjoy the actual fruits of debt consolidation.
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