Being in debt is just a fact for many people. Statistic shows that over 40% of American families spend more money than they earn and the average American household has nearly $10,000 in credit card debt. The rising cost-of-living puts even more stress on these cash-strapped households. Some people attempt to avoid facing their burden of debt by ignoring the collectors or by pretending the situation will take care of itself. But it does not have to be a bad thing, even though you may have a bad credit history, debt consolidation may be a way for you to take charge of your credit.
Debt consolidation is a means of reducing debt via combining your various unsecured debts like your credit card debts into a single payment. This is much easier than having to send 7 or 8 payments to different banks with different due dates. Instead, the debt consolidation company receives one payment and they take care of all the debt on your behalf. The debt consolidation company usually negotiates to reduce the balance, the interest rate, remove the late fees, decrease the monthly payment amount, and set a term during which the debt will be paid off entirely. This has the potential to save you a substantial amount of money.
Before you go for debt consolidation, you need to figure out how much you owe. You can know the total in debt by listing all creditors and how much you owe for each creditor. In addition, include the monthly payment due for each creditor. By assessing your debts, you will then be able to determine how much you owe and how much of a loan payment you can afford if you consolidate.
Consolidating your debts is one of your options for eliminating your debt. By consolidating all your debts into one monthly payment will ease your debt management by focusing only on one payment instead of multiple payments that have different schedules; this will help you avoid missed payments or late payments to your creditors and help you rebuild your good credit records and eventually improve your credit ratings.
You can consolidate your debt either with or without a debt consolidation loan. Many of the reputable debt consolidation companies specialize in being able to manage all of your outstanding debts without having to get another loan. The fee that you pay for their service covers the costs for them to negotiate with your creditors for your interest rate to be lowered and the cost for them take care of the monthly payments to your creditors.
You can also consolidate your debt with a consolidation loan. For instance, if you’re a homeowner you can consider an equity loan using your home’s appraised value and other equities to get the needed financing.
Consolidating your debts will eventually lead to you having no debts at all and a better credit record. Once you have consolidated your debt into one payment, put your credit cards away, and do not take on any more credit. It’s very tempting to get into debt again. But remember, the purpose of you consolidate your debt is to reduce and eliminate your debt and improve your credit ratings.