Guide to Debt Consolidation Options
Debt consolidation simply means the process of combining all your debts into one lower monthly payment. If you have several high-interest rate credit card debts you can for instance save a lot of money by obtaining a loan at a lower interest rate and use it to pay of your high interest debts. Consolidating your debt usually equates to lowering monthly fees which also will save you considerable amounts of money each month. Each credit card company or lender, you are doing business with are charging some sort of fee. Fees such as billing fees, late fees and administrative fees rack in millions each year for these companies. Since you will pay one bill instead of several bills, the administration costs will decrease.
If you are already heavily in debt it can however be hard for you to obtain new loans at a favorable interest rate. Most people interested in debt consolidation are already behind on their payments and can have damaged their credit score severely. With a damaged credit score, the new credits that you are offered will usually come with in an even higher interest rate than those credits that you are already stuck with. If you have some type of collateral, such as real estate, you can usually be offered a low interest rate if you secure the loan with the collateral. You should however be very careful and think this decision through, since you can loose your home if you do not handle your secured loan properly. A positive thing with this form of debt consolidation is that you can be eligible for certain tax advantages; you might for instance be allowed to deduct parts of the interest.
If these options don’t fit your needs, you can contact a debt management company or organization that offers debt consolidation services. You should be extremely cautious when you are looking for these type debt consolidation services, since this is a scam prone area. There are a multitude of malicious companies and individuals out there that will offer you free debt consolidation, but in reality only worsen your situation. Be sure that the service you use is a non-profit based service and doesn’t charge you any upfront fees. This money is better utilized by paying down your debt.
We offer a great tool called the Accelerated Debt Payoff Calculator that allows you to see how much time and money you could save by paying off your debts using the “rollover” method. Using the rollover method, as each smaller debt is paid off, the freed-up payment amount is then applied to the next larger debt, and so on until all debts are paid off. As you are about to see, the rollover method can save you a ton of money in interest charges, and get you debt free in a very short period of time.
Be sure that whatever option you choose fits your personal finance situation and budget.