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Debt Consolidation: What is it? When is it necessary? When should you be cautious?

By Edited Nov 13, 2013 0 0

It is a fact of life that many people face some kind of debt.  Sometimes debt accumulates and can seem overwhelming.  When you are avoiding phone calls just so you won’t have to talk to debt collectors it may be the first indication that you need to seek a debt consolidation agency. 

What is debt consolidation?

Debt consolidation entails taking out one loan to pay off several others and securing a lower fixed interest rate in the process.  It can be a loan taken out using an asset as collateral much like a mortgage on a house.  Since the total of the interest incurred by the debt is considerably lower it allows the debt to be paid off more quickly.

How can you know if debt consolidation is right for you?

•  One major indicator that debt consolidation might be necessary is when you find yourself forced to use credit cards in order to pay off larger bills or other credit cards.
• Another indicator may be when debt makes you feel so overwhelmed that you take out payday loans in order to pay off other payday loans.
• If you are taking out credit cards just to fulfill your basic needs consolidating your debts might help relieve some of the financial stress.
• If you are creating new debts to pay off old debts then debt consolidation might be a viable option.

How can debt consolidation benefit you?

•  Improved interest rates:  Greater debt is incurred by exorbitant interest rates.  If you continue making regular payments you may not be able to see any significant reduction in your debts right away.  Debt consolidation will improve your interest rates so that you can overcome debt more quickly and affordably.

•  A manageable payment plan:  With improved interest rates there comes a more manageable monthly payment plan to ease financial burdens and stop the frequent debt collection calls.

•  Improved credit score:  Debt consolidation can benefit you by reducing your debt balances which may improve your personal credit rating in the process.

What about debt consolidation scams?

Whenever money is involved there are scammers that try to make a profit by taking advantage of the situation.
•    Market research is the key to finding the best deal and avoiding scams.
•    Check out a company’s accreditation with the Better Business Bureau.
•    Make sure the company is licensed before you select them.  Chances for fraud increases if they don’t have a proper license.
•    Review the contract.  Do not sign a contract without considering every detail to avoid future stress.
•    Avoid companies that attempt to pressure you into quick decisions.
•    Avoid companies that ask for fees before evaluating your situation.
•    Let your creditors know what you are doing.  If you maintain contact with them and insist upon receipts after each payment you can avoid future complications.
•    Always maintain a record of your payments for future reference.

Freedom from debt is possible, but sometimes we may need a little help in getting it.



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