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There are several people who find that there is enough money left with them to handle their debts. These are the people who are extremely organized and have an immaculate plan to manage their finance. They have a foolproof budget crafted that not only tells them how much they ear, which are the areas they save more and necessarily but also allow then to save enough money to create a fund to deal with their debts. These budgets actually keep them motivated and get going with their finance management and to pay down their debts.
However, most people are not as privileged to possess these characteristics to help them in effective budgeting and keeping them motivated. It is these people who are often found falling behind on their monthly bills and stay in debt for the rest of their lives.
This is where a debt consolidation loan or a debt management program steps in and can help these people a great deal.
- The good thing about these both is that each requires only one monthly payment. This means it will help you to get yourself as well as your finance more organized and deal with your expenses in a better and more proficient manner taking your income into account.
- Debt consolidation and debt management program will also allow you to keep a track of your progress while you continue to eliminate your debt or debts. This will, in turn, keep you motivated to retain the financial health.
All you have to do for a start is to research online on the different debt consolidation companies in your locality and know their debt settlement ratings before you choose one finally for your finance management program. In addition to that, you must also calculate whether or not a debt consolidation loan or a debt management program will be more helpful in paying off your debts.
Debt consolidation with a loan
This is the most convenient method for consolidating debts where you need to take out a loan. You can take out this loan from different sources such as:
- From a bank
- From a credit union or
- From any online lender.
However, each of them will have different parameters and metrics to decide whether or not you qualify to get a loan from them.
Assuming that you have a solid credit score and enough resources to carry on paying back this new loan, there are a few things that you should make sure and keep in mind now such as:
- You must make sure that the amount of this loan is large enough to pay off all of your unsecured debts at one time.
- You will need to repay this loan in monthly installments at the interest rate that you negotiated with the lender at the time of taking out the loan.
- This repayment period or loan term is usually a minimum of three years and a maximum of five years.
However, the amount of interest you will be charged for the loan by the lender is the primary element here. The lenders will look closely at your credit score while determining the rate of interest they will charge from you for the debt consolidation loan.
Therefore, if you are found to be falling behind in paying off your existing credit card debts, it is highly likely that your credit score will be tumbling, too. In such a situation the rate of interest charged will be much higher.
It is for this reason you should have a good credit score if you seriously wish to take out a debt consolidation loan. There is no point in taking out a larger loan at a high rate of interest to pay off your multiple debts existing. This will not resolve the current financial bad health and will put you back in the same stressful situation.
Therefore, when it comes to taking out a debt consolidation loan you must consider the following:
- Your credit score should be high enough
- The interest rate you get for the debt consolidation must be lower than the average interest rate that you are already paying on your credit card debts.
If none of these conditions exists, then a debt consolidation loan will not do any good to you. You must them look for other alternative loan possibilities such as:
- A home equity loan which is a secured loan with a low interest but come at a risk of foreclosure and losing your home if you fail to repay the loan and
- Personal loans that are unsecured and will have lower rate of interest and often a high amount granted.
However, neither will help you if you cannot improve the interest rate that you are paying or if the repayment period is so long that it does not make any sense.
Debt Consolidation without a Loan
Since there are so many things to look for when you want to take out a debt consolidation loan and not qualify, the best alternative is to consolidate your debts and reduce the monthly payments without taking out any other loan. This process is simple and equally good to deal with your current debts.
- For this you will have to take the help of a credit counseling agency that offers nonprofit debt consolidation through a specifically designed debt management program without you having to take out a loan.
- In this process the nonprofit credit counseling agency will work with the card companies to negotiate and reduce the rate of interest. This will lower the monthly payment to a much affordable level for you.
- All you have to do is send the monthly payment to the credit counseling agency instead of your creditor. The agency then will distribute the money to each of the creditor according to the amount agreed upon.
- The agency may also manage to convince the credit card companies to waive some fees and penalties such as late fees and over-the-limit fees.
However, none of the options is a quick solution and there is no scope for missing a payment.
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