How Does Debt Consolidation Work
If you’re feeling impacted by a mountain of debt, debt consolidation may be a great way to lighten your load. Debt consolidation combines multiple debts into one single payment. In a good debt consolidation program, you’d be paying a lower interest rate on your consolidated debt than you are paying on the individual debt accounts.
Debt consolidation can help reduce the total cost of debt repayment by reorganizing, reducing and simplifying pay-off on multiple accounts.
There are a number of ways to consolidate debt. Debt consolidation programs are the safest way to repay debt as opposed to transferring debt balances to a new card (for a fee) or taking out a fixed rate loan. A good debt relief company works with their clients to pay down existing debts and teach new habits for good money management, without encouraging clients to take on any risky new debts.
Most balance transfer cards offer a period of zero-interest payments, but normally require an upfront fee of 3% the total debt balance. Once the zero interest period ends, the interest payment normally returns to that of a regular credit card (+/- 20% APR). A balance transfer card requires good credit to qualify.
Fixed-rate debt consolidation loans use borrowed money to pay off existing debt accounts. Once your existing debts are paid off, the consolidation loan company becomes your sole creditor. These loans normally have very high interest rates and can become even more expensive than the original debt, if repayment terms are extended over a period of time. A person with bad to fair credit can normally qualify for a debt consolidation loan (at a high price).
Consolidating debt is a great way to relieve the stress (and reduce the cost) of paying down multiple credit cards and unsecured debts. As long as you can commit to making on time program payments and staying on track with your budgeted expenses, a debt consolidation program will have your debts paid off in a fraction of the time that you would on your own!
10/29/2022 07:15:31 am
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