This article is written to let you know that not all debt relief options require you to hire a specialist or to join a program through a company. You may be able to personally deal with your debt problems.
However, you have to be careful when you use the different options that exist out there. If you are not careful, it can worsen your financial distress problems.
This month we will talk about Debt Consolidation. This option consists of combining multiple debts at the lowest possible interest rate. Instead of paying several different bills each month, you only have to worry about one. At the same time, because the interest is lower, your debt will not grow as fast as it has been in the past.
However, there are two common mistakes you should avoid if you plan to use this debt relief option:
1. If you do not have good credit, you will not qualify for an interest rate that is low enough to provide you with a benefit. If so, you may have to consider other options for debt relief.
2. You must commit to avoid getting into more debt until you pay in full the amount of debt transferred. It is a common practice for people to start accumulating debt with high interest credit cards before they have fully paid off the amount of debt transferred, thus, it will make their situation worse.
“Debt consolidation is a very strategic and advantageous tool if used correctly. The biggest challenge to a successful debt consolidation is that “bad habits are hard to break”.”The debt consolidation is absolutely not good if the borrower returns to the same purchasing and charging habits exhibited prior to the consolidation,” said Michael J Welch, President / CEO of University Credit Union.
If your credit is good and you have a firm commitment not to borrow more, you could proceed to consolidate your debt. For that you have two ways to do it. First, take the balances of one or more of your high interest credit cards and transfer them to a card with a much lower interest rate. You can combine multiple credit card debts into a single credit card with significantly lower interest, so you only pay one account each month. The amount is usually much lower than what you would pay by adding up those of other debts.
The second way is to apply for a personal or unsecured loan and use the money to pay off the balance in your high interest credit cards. With credit cards paid, the only debt you will have to pay each month will be the loan installment. Again, your goal is to get a low interest rate, in order to pay less every month, and to be able to get out of debt faster because the interest does not accrue so fast.
Remember you need to make sure that you choose the correct one for your unique financial circumstances. Payments should be manageable for your budget and as long as you stick to it, you should have no problem
This is what Mr. Welch recognizes when he says that a successful debt consolidation is custom crafted to each individual borrower. Where one consumer may need only consolidation of credit card and unsecured signature loan debt another borrower may need all debts including car loans and other installment loans rolled into a home equity loan or even a rewrite of their first mortgage. Needless to say that one particular way does not fit all situations.
To conclude the specialist advises us “to speak with the consumer credit counselor, who is trained and prepared to deal with individual solutions. Do not expect miracles or a “quick fix”. The process can be a bit painful and time consuming, but most of the time the results are satisfactory and help us get back on track. “
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