Many consumers have problems tracking their various debts. We live in an age where nearly everyone has some kind of debt that needs to be resolved, and many consumers find themselves overwhelmed with the process of keeping up with due dates, much less finding the cash to make payments.
Thankfully, there are a few different options for consumers that are struggling with credit issues. One of the best ways to resolve these issues is credit consolidation. Credit consolidation can take a few different forms. This guide will explain credit consolidation, including the different options, help you know what to look for when seeking credit consolidation, cover debt management programs and one of the most popular strategies for paying off debts, and finally will go over when credit consolidation is a good idea.
What is Credit Consolidation?
Credit consolidation is the process of organizing your budget and debt into a more manageable form. Credit consolidation can take place through a loan or other financial product, or it can take the form of a service provided by a company.
When you take a loan or other financial product to consolidate your debt, that is known as a debt consolidation loan. These can be personal loans from banks, home equity loans, home equity lines of credit, or balance transfer cards.
Debt consolidation loans offer several advantages. The first is that the new loan will pay off all of your old debt and allow you to make one monthly payment. This stands in stark contrast to keeping up with several payments and due dates, and makes crafting and sticking to a budget easier. As a result, you’ll be on better financial footing and be able to pay your debt off faster.
Debt consolidation loans also help you pay your debt off faster because they have a lower interest rate than your old debt. Therefore, your monthly payments will be lower, and you’ll pay less for the debt over the course of repayment. This can save consumers thousands or even tens of thousands of dollars on their debt.
Another type of credit consolidation is when you work through a credit consolidation company. The company doesn’t issue you a loan or any kind of new credit. Instead, they negotiate with your current lenders to create an arrangement that is better for you. The company charges you the total amount of your bills each month, plus a reasonable fee. The fee is usually $25-$50 per month. You pay the total bill amount, plus the fee, and the company sends the appropriate payment to the appropriate creditors.
Credit consolidation can help lower your present interest rates. The fact that you are working through a credit consolidation firm that helps you organize a budget and manage your finances means that companies will see you as less of a risk for default.
Another advantage of credit consolidation is that you’ll only have to keep track off one bill. That makes it easier to manage your finances and stick to a budget. The result of good budgeting is faster debt repayment and more financial predictability.
Finding the Best Credit Consolidation Company
When you’re considering different options for credit consolidation companies, you should look for a few things to ensure you’re getting the best deal. The first aspect you should look for is a nonprofit credit consolidation company. These companies are more likely to have reasonable fees. Moreover, because they aren’t allowed to operate for profit, you can be sure that they’ll be acting in your best interest rather than their best interest.
The next element you should look for in the best credit consolidation companies is ease of access. You should pick a firm that is either located near you, or one that has ample online communication options. When you’re working hard and picking up extra shifts to create more income, it can be hard to find the time to go meet with a credit or debt counselor in person. That’s why picking a company that has good ease of access is so important. After all, there’s no value in signing up for a service that you can’t use.
Debt Management Programs and Credit Consolidation
One of the most common methods of credit consolidation offered by credit consolidation companies are debt management programs. These programs involve sessions with a qualified credit or debt professional, negotiating with your creditors for a lower interest rate, and setting up the credit consolidation service so you only have one bill to keep track of.
The best part of debt management programs is the fact that they come with financial education. Most people don’t receive the kind of education they need to navigate today’s complex financial world in school. Financial education through a credit or debt counselor can help you understand the different aspects of credit and debt so you can more informed financial decisions in the future.
Paying Off Debt with the Snowball Strategy
When it comes to paying debt off quickly, there are a few strategies. However, one of the most successful strategies is called the snowball. For this option, you need to save about $1,000 in an emergency account, and then start putting as much money possible toward your account with the lowest balance. When you pay that account off, you then dedicate the payments that were going to that account to the next smallest account.
If you can maintain discipline and focus, this strategy can help you rapidly escape debt, as you make ever larger payments on your balances and lower your monthly minimum payments by clearing out accounts.
In this strategy, you don’t worry about the interest rates on each account, the most important thing is to reduce the number of balances you have, and then to rededicate the resources you were using to help you zero out the next account.
When is Credit Consolidation a Good Idea?
Credit consolidation is a good idea for any consumer that is having a hard time keeping up with or making payments on their bills. Failure to pay on time can have tremendous negative consequences on your credit history, raising your interest rates and making your debt even more expensive. If you’re afraid of being trapped in a cycle of debt, credit consolidation may be the answer you’re looking for.