subject: What You Should Know About Debt Consolidation [print this page] If you're struggling to pay monthly bills such as credit cards, store credit or car loans, debt consolidation could help make life easier. It involves combining a number of smaller debts into a single larger one so that you only have to make one monthly payment. You can consolidate debts by transferring them onto a credit card or by taking out a bank loan to pay them off.
There are many potential advantages to consolidating your debts. Having only a single monthly payment to make can save you time, effort and worry You won't have to keep track of several bills or decide how much to pay towards each one. You can save money, and pay off your debt faster, if you transfer multiple high interest accounts to one with a lower interest rate.
If you have accumulated debts on several credits cards, it often makes sense to consolidate them onto a single one. Many credit card companies offer 0% interest on balance transfers for the first 6 - 18 months. During this grace period, no interest will accumulate and your full monthly payment will go towards reducing your debt. In many cases, the interest saved over three or four months will make up for the 2-4 % balance transfer fee.
If you have a variety of debts such as payment plans or overdrafts, consider applying for a consolidation loan. The money will be transferred to your bank account and you can use it to clear the balances owed to other lenders. It only makes sense to consolidate debts this way if you can take out a loan at a lower rate of interest than you are currently paying on other accounts.
Whichever way you choose to consolidate your debts, always read the fine print and pay attention to fees or extra charges. Perform careful calculations to ensure that the new credit card or loan will actually save you money. Make sure you can afford to keep making the required monthly payments until the debt is repaid. If you acquire a credit card with an introductory rate, know when the interest is due to rise and be prepared to make higher payments or transfer the balance.
Debt consolidation can lower the amount you pay in interest and allow you to get your finances under control. However, it will only help you to pay off your debt if you practice self-discipline. Budget for what you need and resist the urge to buy anything on credit until you are debt-free.
by: Lena Shattuck
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