Does your mailbox fill up with bills every week? Do you have credit card collectors calling your phone at all hours of the day? Do you feel overwhelmed and disorganized? If so, debt consolidation could provide you with the relief you need to keep pushing forward.
What is Debt Consolidation?
When you have a handful of different loans or debts scattered across different accounts, it can be difficult to keep track of them. Debt consolidation allows you to combine all of the debts into one single debt with a simple repayment plan.
A bank or lender must kick off the process by authorizing a new loan that can then be used to pay off your outstanding balances. This satisfies all of your existing debts and then gives you one monthly payment with a single creditor.
In the vast majority of cases, debt consolidation loans are secured by property or assets that you have in your name. A house is the most commonly used collateral. In some situations, you may be able to find an unsecured debt consolidation loan. These loans have no collateral attached and are backed by your promise to repay.
Sometimes debt consolidation loans don’t make much sense. Other times, they can save you a considerable amount of money (as well as stress and hassle). To get a clearer picture of whether it’s a viable option for you, use this debt consolidation calculator.
5 Tips for Consolidating Your Debt
If you decide that debt consolidation is the right path, it’s time to get to work. Here are a few tips to help you along:
- Get Organized
Regardless of how you choose to proceed, the first step is to get organized. You need to gather all information and documentation and put it in a single spreadsheet. This includes the name of the lender, the amount you owe, the terms, interest rates, payment dates, etc.
With all of this information in one spot, you can begin to get a clear picture of how much you owe and how necessary debt consolidation is. You may find that you can handle the issue. Or, more than likely, you’ll see that debt consolidation is a viable option.
- Analyze Your Credit Report
The next step is to pull your credit report and see what’s on it. Credit reporting errors and mistakes are fairly common and may be hurting your ability to get a competitive consolidation loan. If you find any issues, dispute these negative marks immediately.
- Choose the Type of Loan
As previously mentioned, there are a couple of types of debt consolidation loans. There are secured and unsecured loans.
Because secured loans are backed up by collateral – such as a house or car – they tend to come with lower rates and more flexible terms. However, there’s also a greater risk on your part. If you don’t pay off the loan, you could lose your personal property.
Unsecured loans don’t have nearly the same risk, but you’ll pay for it. These loans come with higher interest rates and more rigid terms. You’ll also have to get approved (based on your credit score).
- Develop a Budget
Develop a budget and figure out how much money you can pay down each month. This will help you evaluate a debt consolidation loan on a realistic level. You may find that you have enough room in your budget to pay off more than the minimum payment.
- Stick to the Plan
After consolidating your debt, it’s important to stay disciplined and motivated. Continue to pay down your debt and stick with your plan. You’ll eventually reach your goals and move on to bigger and better things.
Establishing a Bright Financial Future
Can you imagine what a life without debt would look like? Instead of putting hundreds or thousands of dollars per month towards payments, you could use that money to save, invest, support charitable causes, go on vacations, and buy things that you want. You’d also be able to rest easier at night knowing you aren’t living paycheck to paycheck.
Debt consolidation isn’t the only answer, but it is one option. Used strategically, it could help you finally escape debt and enjoy life the way it was meant to be lived.
Article Submitted By Community Writer