Whenever someone asks about what is debt consolidation, he must know that this method is actually a method used to eliminate credit card debt. The 2016 survey by the Federal Reserve showed the average amount of debt by each age group:
Under 35: $67,400
75 and up: $34,500
If you have taken out private loans for school or moving to a different place, consolidating these loans can make your debt load manageable. You are basically getting rid of high-interest credit card bills, which in turn allow you to repay the balance on time and earlier.
Did you also know that the total amount in credit cards owed by U.S. people is $444 BILLION??
The numbers are astonishing.
Read on and learn more about how debt consolidation can help you avoid falling into a financial rut.
Debt Consolidation: A Guide to What It Is and How It Works
What is Debt Consolidation?
Debt consolidation is the process of paying off a number of debts with one lump sum payment. It is a type of debt relief that can help you repay your debt with one consolidated loan. It typically involves taking out a new loan and using the money to pay off some or all of your existing debts.
Debt consolidation is most commonly done by taking out a new single loan to pay off several existing loans.
The new loan may have a lower interest rate, which will reduce the monthly repayment amount and also allow for an increased repayment period, which will make it more affordable.
what happens if you consolidate your student loans?
Consolidating your student loans is a good way to simplify your payments, lower your interest rates, and make more efficient use of free money.
Consolidating student loans can help you reduce the amount of time it takes to pay off your loan by lumping them together.
Plus, you might be eligible for benefits like a repayment plan with more forgiving terms or an opportunity for some free money.
The Pros and Cons of Debt Consolidation
-Debt consolidation can reduce some types of interest rates on high-interest unsecured loans, such as credit cards.
-Consolidating your debts might provide lower monthly payments and an extended repayment period, which could help you manage your budget better and improve your credit score.
-Some lenders also offer benefits like lower interest rates if you agree to certain terms, such as paying on time every month.
-Debt consolidation is not for everyone, especially you have any trouble repaying credit card balances in full each month.
Things to know about Debt Consolidation
There are some advantages of debt consolidation.
The consolidation definition starts with debt consolidation for education or home.
- The advantage of consolidating education is that you save money in interest, which you can place toward your other debt, such as home equity loans.
- Consolidating student loans can also be a step toward bankruptcy protection. Even should you not end up filing for bankruptcy, having bad credit can make it hard for credit in the future. With student loans, credit agencies have an inclination to keep tabs on your history and your ability to pay back the loan.
- Home equity loans may have some benefits in case you have problems repaying your invoices. These loans usually have high-interest rates and need regular monthly payments. They also entail the purchase of a home, a costly move for the majority of people. As a consequence, consolidating this type of loan can help lower monthly payments and supply you with a way to rebuild your credit.
- Credit cards are another thing to be careful about if you will need to pay off all your debt. Not only can they be inconvenient, but they also drain your finances each month. Use a credit card responsibly and see how much you can accumulate before you have to pull on the plastic.
- In the interest of saving yourself by paying numerous invoices every month, the number one advantage is convenience.
- In the pursuit of saving your credit rating, a disadvantage of debt consolidation is that you may be forced to rekindle the same loan each year if you are unable to make your monthly payments on time. If you are living paycheck to paycheck, this can really hurt your credit score.
- A negative impact of having many loans would be that it can lead to bankruptcy. Debt consolidation doesn’t erase your debt, nor does it free you from the consequences of past mistakes. However, having all of your debts consolidated into a monthly payment makes it easier to pay down debt and avoid bankruptcy.
- Even a decreased interest rate isn’t necessarily an assurance when you consolidate.
- Debt consolidation doesn’t mean debt elimination.
- Debt consolidation is a refinanced loan using extended repayment terms.
- Extended repayment terms mean you will be in debt longer.
- Debt consolidation is distinct from debt settlement. If not done right, you can lose thousands of dollars.
- Use a credit card ONLY if you can really pay off your debts over time.
- Some debt settlement companies suck. They don’t really allow you to slay enormous sums of debt. In fact, you may end up paying more and staying with debt longer because of consolidation if you pick the wrong companies.
If you consolidate, there isn’t any guarantee that your interest rate is likely to be much lower.
Your debt consolidation interest rate is normally put at the discretion of the creditor or creditor and is based on your past payment behavior and credit rating.
Even in the event that you are eligible for consolidating with low interest, then there isn’t any guarantee that the rate will always be low.
Keep in mind that the reason you choose to consolidate loans would be because they save you money and allow you to take out one loan without having to worry about multiple bills each month.
Realistic Video about Debt Consolidation by Dave Ramsey: Is it Worth it?
I just love Dave Ramsey because he is genuine and helping millions around the world getting their finances into place. In this video, he covers the topic of debt consolidation and if it’s worth it.
Watch until the end and Subscribe to his Channel.
Best Debt Consolidation Companies
In the event, you decide to consolidate your debt, pick the right company. Here is a list of the best debt consolidation companies around.
- Best for individuals with $10,000 or more in unsecured debt: Curadebt
- Best for Bad Credit score: OneMain Financial.
- Best for Borrowers with a High-Credit Co-Signer: FreedomPlus.
- Best for a Debt-Free Plan: Payoff.
- Best for Educated Borrowers & Co-Borrower Option: SoFi.
- Best for Good Credit: Discover Personal Loans.
- Best for Low-Interest Rates: Best Egg.
- Best Marketplace: Lending Club.
- Best Lender for No Fees Except Late Fees: Discover
- Best Lender for Funds Available As Soon As The Same Day: LightStream
- Best Lender for $2,000 Minimum Loan Amount: Prosper
- Best for customer service: Marcus by Goldman Sachs.
Debt consolidation loans can help you get rid of your debts and save money. But, before you take the plunge, it is important to know what lies ahead so that your decision is an informed one.
Take some time to research different providers and compare rates. Using one service can wind up costing you money over time.
By looking at various choices, you will have the knowledge necessary to carefully choose the very best debt consolidation plan for your situation.