Debt Consolidation
Are you feeling stretched by credit credit card bills, loans or
their high-interest payments? You may consider debt consolidation
to better manage your debt problem.
Debt consolidation is a process of restructuring your debt with
new lower monthly payments and interest rates without negatively
affecting your credit rating. You could bundle your multiple bills
into one payment, save money, and have spending room to spare.
Advantages of debt consolidation
- Lowering interest rates
- Simplification to one monthly payment
- Reduction or removal of penalty charges
- Obtaining a payment plan
Disadvantages of debt consolidation
- Paying more total interest charges over the longer term of
repayment
- Risk of getting into further debt and/or losing collateral
(home, car, etc.)
After consolidating you current debts, it is very important to
for you to minimize your credit use to prevent further debt from
accumulating.
Two Types of Debt Consolidation
Basically there are two types of debt consolidation: a debt consolidation
loan and a debt management plan. You can either get a debt consolidation
loan to lower your rates and payments or use a debt management programs
letting a third party deal with your creditors.
- Debt Consolidation Loan
A debt consolidation loan is any kind of loan to consolidate various
debts and then to pay single lower monthly payments. In order
to do that you have to find a loan with lower interest or lengthen
the payment term. However, the longer the term the more total
interest you end up paying over the life of the loan.
You can get a debt consolidation loan by refinancing your mortgage
or getting a home-equity loan or a personal loan.
- Debt Management Plan (DMP)
If your financial problems result from too much debt or your
inability to repay your debts, a debt management plan (DMP) may
work for you. A debt management plan is not a loan but a process
by which a credit counseling agency can negotiate on your behalf
with all of your creditors to obtain a lower monthly payment extending
over a period of time to satisfy all of your current accounts.
They you send the agency one payment each month and then the agency
uses your payment to pay your creditors.
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