subject: Debt Consolidation Why Its A Good Choice For Those With Too Much Credit Card Debt. [print this page] What is Debt Consolidation? What is Debt Consolidation?
Its the process of obtaining a new loan to pay off high interest credit card revolving accounts.What are the advantages of doing this?
Just imagine that each month you can make one payment to pay your debt instead of having to pay numerous.This give you the chance to do other more productive activities. It also makes it less likely that you would miss or be late on a payment that could negatively affect your credit score. But most importantly, it can save you significant amount of Money. We are aware that in the current environment credit card companies are charging very high interest rates on both outstanding balances and cash advances. Many have gone up close to the 30% and in case a company was charging 79%!.
What if you could take all those credit card payments and bundle them up into one loan and pay one-third the interest? Making it even better if the interest was fixed so that you would not have to be concerned with future increases. The savings would be significant and you would be able to pay the loan faster. Your credit and credit score could possibly improve because you would only make one payment a month and this would decrease the risk of missing or being late on a payment and your loan would be paid faster, both factors helping improve your credit. This holds true as long as you did not take out a substantial amount of new debt.
There are three possible ways to refinance:
1) Home Equity Loan - This the easiest. fastest and the type of loan that will produce the greatest cost savings because of the current low rates on home loans. The proceeds from the home equity loan would be used to retire the unsecured high interest loans which are mostly comprised of credit card debt. You would only have to make a monthly payment for the new home equity loan.
2) Unsecured Loan - If you have good credit, then this type of loan makes is logical since you could negotiate a new personal unsecured loan that had at a lower interest rate than your current credit card rates.
3)Low interest no annual fee credit card - This is the least favorable way but its worktable, it's an option nonetheless. In this approach you would take out a new credit card that had 0% or low APR interest rate and roll all your unsecured debt into it. This would leave you with one payment on a low interest rate card.
There are those rare occurrences were the debt consolidation company can negotiate a loan discount. This occurs in the circumstances were the individual is near bankruptcy and the creditor is willing to recoup part of his investment, than not getting anything at all. This type of scenario is more representative of a debt settlement than a debt consolidation.
In summary:
Debt Consolidation offers several distinct advantages and can be an affective Debt Relief tool. It helps you organize your monthly payments into one payment Freeing up more time that otherwise would be spent keeping tack of and paying your bills. It can produce a significant amount of cost savings by replacing high interest cost debt with low interest bearing debt. This also can result in helping you pay off the debt quicker. It can help boost your credit score by reducing the risk of being late or missing payments. Debt consolidation therefor can reduce the stress in your life and give you the financial freedom you have been seeking. It is a great method to get your financial house in order. Depending on your situation this method of debt relief is worth taking a look at as one of the alternatives for becoming debt free.
