Debt Consolidation

Debt consolidation is an excellent tool that can help you manage and decrease your debt when you simply can't do it on your own. There is no way to heal tarnished credit without the ability to reduce debt, and pay your bills on time. However, once your debt has reached a certain level, this can seem almost impossible to accomplish.

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There are numerous options to help manage, reduce, and even eliminate debt. The most important part is that you realize that you are not alone, and that there are millions of people around the world that are in financial disrepair. There are so many options to investigate when considering taking on help to better your financial situation. Depending on what stage of hardship you are in, there is a program that can improve your situation.

How Can Debt Consolidation Help?

The main feature in debt consolidation is interest. Lowering monthly payments to increase your financial power is the basis of consolidation. Entering into a consolidation program can help you free up extra cash that you probably didn't even know you had, and make daily living more manageable. It makes an immediate impact on the amount of free money you have in your pocket. When you have multiple unsecured loans (loans without physical collateral), chances are you have several interest rates above prime, and more than likely those loans have different payment days each month. A consolidation program takes care of all these separate loans for you. All the separate debts are paid off by a single loan. Instead of making several different monthly payments, you are left with one single, easier to handle monthly payment in place.

As mentioned earlier, the second feature to debt consolidation is the interest rates. If you have balances on several different credit cards, your interest rates are more than likely 18 percent of higher. When you consolidate all your balances, you can end up saving thousands of dollars that otherwise would be going to waste if you were still paying credit card interest. For example, if you had $20,000 in credit card debt, spread over three cards with an 18 percent APR, you are paying almost $5,000 extra dollars in interest per year. Because the interest is so high, it makes it very difficult for you to bypass interest payments, and start paying the principal. Lower these interest rates to a few points above prime, just as a consolidation loan would do, and you immediately start saving thousands of dollars a year, and finally get the opportunity to put a debt in the principle amount, and not just interest.

Are there Drawbacks to Consolidation?
As with everything involving finances, there are always risks. One of the drawbacks to a consolidation loan is convincing the lenders they can put their trust in you. By taking on usually higher debt balances, they are taking a risk on you to pay them back. Because of this, debt consolidation loans usually require some sort of collateral to back the loan they have given you. In most cases, home equity is a perfect backing for these types of loans. It can be difficult to find a consolidation loan if you do not have something physical to put against the loan.

There are many reasons why you night be considering consolidation, or one of the many other options for debt repair. Be aware of the warning signs that debt might be consuming your life to the point where you might need assistance. For example, if you find yourself using credit for regular living expenses, such as food and rent, or if you find yourself transferring balances between cards to avoid payments. Debt is nothing to be embarrassed about, but can easily spiral out of control at the blink of an eye if not watched carefully.

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