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Debt Consolidation

Debt consolidation is the process of merging your debt obligations into a single payment in order to ease your debt burdens. Many people who consolidate their debt also refinance it at the same time.

America’s Debt Problem

The United States has some of the largest national debt figures in the world. Since the subprime mortgage crisis of 2007, U.S. homeowners have become increasingly indebted in the face of stagnant wages and reduced property prices. Credit cards have become a popular form of credit in the country – the average family in the United States has thousands of dollars in credit card debt. Unfortunately, credit cards carry an extremely high interest rate, which means they are a serious burden for those who carry high balances.

The increasing household debt in the United States has brought about a few different industries that aim to help consumers improve their current financial standing. Debt has the ability to continually control your life – it can dictate your financial future more strongly than you know. Once people begin to accumulate debt they also happen to damage their credit score. This means that any future debt they attain will come at a higher interest rate – and they might not be able to get a loan at all.

Debt Consolidation

All of this contributes to an inability to create wealth – you’re much less likely to be able to invest in yourself or opportunities if you have a bad credit score. For this reason, debt consolidation has become a massive industry. Debt consolidation companies help people get out of the clasps of high interest debt and move on with their lives.

What is Debt Consolidation?

Debt consolidation is taking the debt you currently have and combining it into a single payment. Most debt consolidation also include debt refinancing, which means that you pay off the current loan with a new loan that carries a lower interest rate. This is an effective way to help you reduce your overall debt burden and begin lowering the amount of interest accumulation you have. Many people use the term debt consolation to refer to both consolidation and refinancing debt simultaneously – this is what we will focus on for the majority of this page.

Debt consolidation has improved the lives of hundreds of thousands of Americans. Debt consolidation has the power to do the following things for you:

  • Reduce Stress of Multiple Payments – You may find that having multiple payments results in you not paying bills on time – consolidation them together is the best way to reduce the stress of this complexity
  • Reduce Interest Payments – Reducing your interest rates is one of the best byproducts of debt consolidation. You’ll find that you have less debt burdens due to reduction in interest
  • Quicker Repayments – You’ll be able to pay off your debt much quicker than if you didn’t’ consolidate
  • Custom Payment Terms – You are better able to dictate your payment terms. Perhaps some of current debt has inconvenient payment scheduling, you can change this by consolidating under different terms

The benefits to consolidation are endless, especially if you have a lot of high interest debt, but make sure that you’re well aware of the process and how to choose the best debt consolidation providers.

    Two Components of Consolidation

    As mentioned previously, debt consolidation is the merger of multiple loans but it can also include refinancing. Below are some attributes of debt consolidation and refinancing – keep in mind they have been separated for the purpose of this analysis.

    Debt Consolidation

    • Takes multiple loans or credit cards and mergers them into one
    • Maintains an average of the current interest rate
    • Normally results in same payments over time
    • Provides clarity
    • Reduces stress of multiple payments
    • Improves credit score by merging all debt obligations into single loan
    • Can ruin some benefits associated with government student loans

    Debt Refinancing

    • Reduces interest rate currently applicable to financial agreement
    • Reduces monthly payments
    • Often reduces the term time of the loan
    • Reduces overall debt obligation via reduction in interest accumulation
    • Increases chances that debt obligations will be met
    • Typically has positive impact on credit score in the long run
    • Has short term negative impact on credit score due to new issuing of debt
      Debt Consolidation
      Debt Consolidation

      Should I Consolidate My Debt?

      If you’re still wondering if debt consolidation is right for you, you’re probably wondering if there are any signs that debt consolidation is the right path. We’ve compiled a list of indicators that display debt consolidation will be a worthwhile process for you:

      • You struggle to pay off your credit card balances
      • You often forget to pay one of your debt obligations
      • You have four or more credit card balances
      • You have multiple personal loans, including auto loans
      • You currently have high balances on credit cards with high interest rates
      • Your credit score is stagnant or often falls after each month
      • You’re struggling to be approved for a mortgage or loan due to current levels of debt
      • You have multiple private student loans that have high interest rates
      • You can’t afford to pay your current bills
      • Your credit card interest has become a burden on its own

      If you feel that a few of these scenarios apply to you, debt consolidation can have a massive impact on your life.

      How to Consolidate Debt

      So, you may be wondering what the best ways to consolidate debt are. The best way to consolidate debt will depend on a variety of different factors. But there are a few very common ways that people consolidate their debt. Below we will provide you with information on the most popular ways people consolidate and refinance their debt:

      Personal Consolidation Loan

      A personal consolidation loan is effectively a personal loan that is used to consolidate debt. This is the most common form of debt consolidation loan. If you attain a personal consolidation loan, you will contact a lender and explain the reasons you are attempting to acquire this loan. Many debt consolidation lenders provide these loans exclusively. If you are approved, you will then be given the capital needed to pay off your current debt burdens. You then are responsible for paying back the current loan at the new interest rate. This moves all your debt obligations into a single payment and refinances the debt at the same time. Make sure that you assess the total cost of the loan and are certain the interest rate is much lower than what you are currently paying. Some borrowers end up paying more interest over the life of their loan because they are diligent in their research.

      Borrow Against Your Home

      This will only work for homeowners that have considerable equity tied up in their home. You can get a new mortgage on the property you own and use the additional capital to pay off your current debt. Because mortgages are secured against the value of the home, their interest rates are typically much lower than other forms of debt. This is a great way to get a low interest rate when consolidating your debt. The only downside is that you need to be certain you can pay your current debt off otherwise you are putting your home at risk – this has the potential to ruin the livelihood of your family.

      Credit Card Balance Transfers

      Using credit cards to consolidate debt is actually an effective way to reduce your payment burdens in the short term. If you have numerous credit cards that are charging you a high interest rate on your balance, you may want to consider a balance transfer to a new credit card that has a 0% introductory APR. There are plenty of credit cards that offer up to 18 months of interest free spending and balance transfers. This is a great way to get some breathing room from your current interest accumulation. The only downside to this form of debt consolidation is that after the 18 months of interest free debt, you will be back to paying high interest on you balance. If you think you can pay off your debt in 18 months, then this could be a good option. Keep in mind many credit card providers charge a small one-time transfer balance fee. This can often be between 2-3%.

        Consolidating Student Debt

        If you’re like many Americans who has gone to university over the past two decades, you probably have a considerable amount of student debt. The United States government has done little to restrict rising university fees and this has led to a significant population of people being heavily indebted to both the government and private student loan companies. In fact, it is thought that there is about $1 trillion dollars in student debt currently outstanding in the United States. For the obvious reasons, this has created a lot of problems in the lives of former students. Consolidating student debt has become big business, but it’s important that you understand the distinctions between consolidating federal and private student loans.

          Debt Consolidation

          Consolidating Federal Loans

          With federal student loans, you can consolidate your loans into a single payment structure. Unfortunately, you cannot refinance your federal loans – luckily, they tend to be at a lower interest rate than many of their private competitors. You can consolidate your loans directly on the government financing website. In fact, you don’t even have to contact them individually to say that you want to do it. You may be wondering how you can consolidate several loans without refinancing them if they have different interest rates, but it is possible. The federal loan department will provide you with a new interest rate that is simply a rate that is weighted depending on how much debt was owed under each previous interest rate.

          It is important to keep in mind that if you do decide to consolidate federal loans, you might lose some of the benefits attached to your current loans. You need to check and make sure that none of your federal loans have attached benefits that will become null and void should you consolidate them.

          Consolidating Private Loans

          Consolidating private loans is much more beneficial than federal loans – this is because you fan refinance as well as consolidate. Private student loans are treated just like any other form of personal loan when it comes to refinancing. Because private student loans tend to have very high interest rates, they have become extremely popular forms of debt consolidate. There are plenty of companies operating in the industry that deal exclusively with private student loans. Keep in mind, you won’t be able to mix your private student loans with your federal student loans if you happen to have both.

           

          Who Offers Debt Consolidation Loans

          If you’re looking for the best debt consolidation loans, you have a range of different options at your disposal. Despite only recently gaining prominence, debt consolidation has been an industry for you a long time. For this reason, many traditional banks offer debt consolidation services in the form of personal loans that can be used to pay off debt. If you have numerous loans or credit cards with the same bank, you can ask them to consolidate all your loans for you directly. This is a great way to skip the hassle of dealing with an independent company. Many banks will offer these services as they know you will look elsewhere to do so anyways. Head online and find out which are the best banks to consolidate debt with.

          If you don’t want to go with a traditional bank, or you feel that your credit score is too low to get traditional financing through a large consumer bank, you can use a variety of different lenders. Recently, online lenders have emerged as big players in the debt consolidation industry. The amount of lenders entering the industry has made it extremely competitive – this means that interest rates from online lenders have been coming down in recent years. Although it important to not that many of them are still much higher than what you would find with traditional lender. Online lenders take the stress out of the process by allowing you to upload all your documents directly through their web portal. It’s a great way to speed up the entire process – in fact, some online lenders can get you money within a day of applying for consolidation.

          Consolidating Student Debt

          If you’re like many Americans who has gone to university over the past two decades, you probably have a considerable amount of student debt. The United States government has done little to restrict rising university fees and this has led to a significant population of people being heavily indebted to both the government and private student loan companies. In fact, it is thought that there is about $1 trillion dollars in student debt currently outstanding in the United States. For the obvious reasons, this has created a lot of problems in the lives of former students. Consolidating student debt has become big business, but it’s important that you understand the distinctions between consolidating federal and private student loans.

            Pros

            • Reduce your payments
            • Reduce your interest rates
            • Simplify billing structure
            • Provide additional clarity to your financial situation
            • Begin rebuilding credit score
            • Reduce time it takes you to pay back your loan

            Cons

            • Hidden fees and charges
            • Short term damage on your credit score
            • May not change your financial behavior
            • Can result in asset seizure if you secure your loan against home or car
            Debt Consolidation

            Preparing for Your Application

            If you think you’ve found one of the best loans to consolidate debt, and you want to get the process started, there are few things you should do before you submit your application. Applying for any form of finance normally results in you having an inquiry on your credit file, that’s why it’s important to make sure that you have as good of a chance as possible to be approved for the loan.

            Improving your credit score before you submit your application is one of the best ways to ensure that you’re approved. In addition, having a lower credit score will also result in you being able to get a lower interest rate than if you had a high one. You can improve your credit score quickly by paying down the current balances that you have on your credit cards. You’ll want to have a month to do this as your credit score typically only receives information from card providers every four weeks. Even paying off just a portion of your credit card balances will help immediately improve your score. You should also check your credit report to make sure there are no mistakes – you’d be surprised at how many people have mistakes on their credit reports which are easily fixed.

            Lastly, make sure to understand what kind of score your prospective lenders typically require. You can ask them what the typical score their client base has is. You don’t want to fail an application as that will make it harder to get a loan from another lender. Make sure the lenders that you are trying to work with are realistic options for you.

             

            Debt Consolidation Calculator

            At this stage, you may be wondering if you will actually save any money consolidating your debt. You might think that you’ll save a bit of money, but that the amount of effort you’ll have to put in will not justify the extra cash. This is a natural thought – and you shouldn’t be looking to save just a small amount of money if you’re going to go through this process.

            Fortunately, there are debt consolidation calculators that help you determine exactly how much money you will be able to save by consolidating your debt. These tools are readily available for free all across the internet – you can find them on a range of different sites just by Googling for them. In addition, many lenders will provide you with debt consolidation calculators directly on their website.

            You can input your current loans and credit cards along with their term times and interest rates. This will give you an overview of how much money you can expect to pay back if you don’t refinance or consolidate your loans. After this, you can input the interest rate of your loan consolidation finance as well as the term time. The calculator then provides you with a breakdown of the amount of money that you’ll save, as well as what you can expect your monthly payments to be. You’ll be surprised at how much money you can save if you choose the right consolidation loan.

            Debt Consolidation

            Verdict

            After reading this page, you should be an expert on loan consolidation and how it can help you take back control of your financial life. You should know where to consolidate credit card debt, as well as a range of other forms of debt. Determining the best banks to consolidate debt will depend on your particular situation and the kind of lenders that you like to work with.  As always, it’s important to keep an open mind when approaching financial decisions like this – there are a lot of options and they should all be considered.

              If you’re a homeowner, you have even more options when it comes to debt consolidation. You can use the value of your home for consolidating credit card debt or auto loans that you are finding have too high of interest rates to handle. But remember, borrowing against an asset like a home is risk and should be only used if you know you can meet the financial obligations.

              There is stigma that says that debt consolidation is only for those who are struggling financially. This is entirely untrue. While there are many debt consolidation clients that are struggling to meet their financial commitments, many others are also just trying to save money so that they don’t need to be spending. If you have a bunch of loans that were signed when interest rates were high, you’re overpaying for your finance. You also shouldn’t give yourself the stress of paying ten different loans every month when you can lump them into one simple payment. Whether you’re struggling to make your payments, or your simply over spending, debt consolidation is the perfect solution to your financial dilemma.

              Online Debt Consolidation

              There are several options when it comes to finding a debt consolidation loan online.

              How Nonprofit Debt Consolidation Works

              There are several reasons why people consider nonprofit companies for their debt consolidation and credit needs.

              Credit Consolidation

              Credit consolidation is the process of organizing your budget and debt into a more manageable form.