Debt Consolidation Options And Tips For Financial Relief

Being weighed down by crippling debt is a scary situation for anyone to face. As bills pile up, interest rates alone can become unmanageable. What started as a small amount of borrowing can quickly turn into a nightmare. If your financial situation only allows you to pay the minimum monthly requirements on your bills, you could find yourself spending years paying off your debt while paying thousands of dollars in interest payments. If your personal debt has skyrocketed out of control, it might be time to consider a debt consolidation company. Before you venture down this chosen path it’s important that you understand the options that may be available for you based on your own personal circumstances.

Start With A Free Credit Report Check

Many debt consolidation companies will require that you meet some basic thresholds for debt consolidation programs. The first step in your journey to financial independence will be pulling your credit report. Transunion, Equifax, and Experian all offer free credit reports on a one-time annual basis. Programs such as AnnualCreditReport will provide you with a full view of your credit history. Paying off smaller delinquent bills and charting out your entire scope of consolidation needs will start you off on the right footing.

Determine Which Path Is Right For You

There are essentially three main options most debt consolidation experts recommend you examine before ultimately landing on a plan to consolidate your debt.

1. A Debt Consolidation Credit Card

If you have a decent credit score and a smaller amount of debt, opening a new credit card that allows for debt consolidation might be your best option. These cards allow you to move credit card debt from an old account to your new card. In many cases, you may be offered low or even zero percent APR rates for six-months to one-year. With a single card at your disposal, you are offered a single monthly payment option that may be more manageable. Make sure to check if the credit card you choose charges a fee to transfer your outstanding prior debt to the card. Also, be sure to examine any annual fees and be sure to understand if additional purchases will trigger an interest fee on your transferred debt.

2. Personal Debt Consolidation

A second option is a personal debt consolidation loan. In this case, you will typically talk to your bank, credit union, or you can choose an online service to borrow enough money to consolidate your worrisome debt. Keep in mind that these services offer various options with differing fees. For example, you may pay an “origination fee” which is typically a percentage of the overall amount you want to borrow. Every service also offers its own terms that typically range from three to five years and they offer variable interest rates, typically based on your credit score. The advantage of these services is that you’ll pay a lower monthly bill, however, the longer loan period also means you’ll pay more in interest over the term of your loan. Debt consolidation loans, while a great option, are also typically subject to a credit check and various associated fees.

3. Debt Consolidation Management

If your credit score is suffering and you need help immediately, there are debt consolidation companies who offer services to reduce your interest rates while creating a single monthly payment program and general credit counseling. These services work by approaching all of your credit card companies and other creditors on your behalf. They negotiate lower interest rates when possible and then set up a repayment plan. The benefits of these services are numerous. First, you pay less interest once your bills have been renegotiated, second, you pay a single monthly bill to the debt consolidation company and they act as a proxy on your behalf. Finally, many of these companies provide credit counseling services so you can set a budget and prepare for a debt-free future. Depending on the debt consolidation company chosen, you will pay varying fees for their services, an important consideration when paying down already established debt. Also, consider that in many cases, these companies may negotiate the closure of your credit card as part of their negotiations.

Secured Vs. Unsecured Credit Lines To Consolidate Your Debt

Unsecured debt is typically associated with the three options listed above. Another option is to sign a secured loan agreement. Secured debt, however, comes with one caveat, you must place collateral on your loan, typically in the form of a home, car, or upfront cash. Title loans are a form of secured debt because you must forfeit your vehicle if you don’t repay the loan. A home equity loan is also considered a secured debt consolidation option because your home is at stake.

Be Ready To Commit To Your New Plan

Once you have negotiated a repayment plan through any of the options listed above, be ready to commit. Missing a payment by over-committing could lead to the entire process being restarted. Some credit card companies and other lenders may not be willing to renegotiate your terms if you fail to make your payment.

Find a loan that is sustainable and before you know it, your personal debt could be a product of your past.

References: AnnualCreditReport, Consumer Financial Protection Bureau, USA Gov, Investopedia