Debt Consolidation Basics

Very few people are debt-free. As a matter of fact, many Americans have tons of debt. The number of bankruptcy filings continues to increase daily. Others suffering from overwhelming debt look for help from credit counselors. Millions and millions of Americans seek credit counseling assistance for their growing financial problems every year, and the numbers have doubled in the past decade.

If you're one of many individuals or families facing increasing debt, you're undoubtedly searching for ways to control it and pay it down. When you look at all those bills, you may not be able to see a viable method to handle all the payments coming due. But, you may be able to do it through a debt consolidation loan.

When you use a debt consolidation plan, instead of facing a stack of payments from a number of creditors, you'll get only one bill a month. Essentially, the consolidation plan will take all of your monthly debt and loan payments and put them into one package. Here's an example of how it works.

Let's say you have these debts:

Credit card 1 - $12,500 at 13% interest
Credit card 2 - $9,800 at 15% interest
Credit card 3 - $4,750 at 17% interest
Car loan - $21,600 at 8% interest

Your total is $48,650 at various interest rates.

Knowing how much you owe, you're ready to shop for a consolidation loan, which will allow you to pay off all of those outstanding debts and leave you with only one monthly bill to pay, the consolidation loan itself. When comparison shopping, remember, the loan's rate of interest is key. You want to pay as little in interest charges as you can, so that you'll be able to pay more toward the loan principal. For example, if you're able to get a loan at 6% interest, you'll be paying one-half to one-third of the interest charges that you were paying on the your original debts.

But be careful. Often, when people find themselves with more money every month due to a successful debt consolidation loan, they grow comfortable, thinking they're safe to once again start spending freely. They end up defeating themselves and get even deeper into debt. Instead, the way to approach that surplus of money is to put as much of it as possible toward the repayment of the consolidation loan. Put every spare penny on the consolidation loan. The sooner you pay the loan down, the less you'll have to pay in interest and the sooner you will have reclaimed your financial well-being and credit health.

Unfortunately, debt is an all-too-common condition in today's culture. Even more tragically for many Americans (and, indeed, for people around the world), it's simply become a way of life. Although the numbers of those struggling with debt continues to rise, there is something that you can do about it. You can take control of the situation – and take back your financial life – by consolidating your debt into one monthly payment that's considerably easier to handle each month.

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