Having debt looming over your head can present financial challenges in your daily routine and mount to stress, as you work your way to find some sort of debt relief. Debt can encompass many forms like credit card debt and loan debt, so educating yourself with the right plan of attack and debt tools can help you get out of debt faster.
Debt consolidation is a process that allows borrowers unmanageable debt — consisting of varying interest rates, terms and monthly payments — can consolidate all their owed debts into one. This debt relief approach is typically offered by banks and credit unions, and could be a way for consumers to regain control over their funds by offering a single low monthly payment with (ideally) a lower interest rate.
The new lending institution pays off the entirety of your original debt, and in effect, you begin to repay the amount owed to the new lender under different terms and conditions. Ultimately, the goal of using debt consolidation as a tool is to get out of debt in a more streamlined, and simple process.
One of the dangers of debt consolidation is that some people rely on it as a bailout method. Instead of paying off a consolidated loan as soon as possible, borrowers may continue to dig themselves deeper into debt by adding new purchases and credit charges onto their names.
The only way to avoid falling into this trap again and finally find permanent debt relief is to spend less than your income affords, even if that means mustering up all your will-power and strength to avoid further charges and racking up credit card debt.
Speaking to a debt counselor can be helpful in keeping you focused, but you still need to be accountable for how much your budget can handle when it comes to debt.
Racking up debt can pose a danger to consumers by threatening their financial stability years after the debt was initially accumulated. This burden can be a life-long ordeal if an active approach is not taken, and many negatives can arise just by spending too much. That is why debt management is so important.
Lower credit score: Existing debts owed have a direct impact to consumer credit scores, which means that today’s small purchases here and there can prevent you from buying a home one day if you don’t manage debts properly.
Bankruptcy: Bankruptcy is a place no borrower ever wants to go. Defaulting on loan debt, overwhelming credit card balances and other high-debt indicators can push your financial situation into the bankruptcy danger zone. Filing for bankruptcy as a result of too much debt can stay on your credit report for 7-10 years, depending on the type of bankruptcy you file for. While it may not seem like a long time on paper, what this means is that for the next decade your purchasing power — again for a home, car or any other large purchase, like your child’s student loan — will be negatively affected.
Like many Americans in today’s tightening economy, you may be faced with mounting debt and concerned about your ability to make payments. Credit card debt, unsecured loans, mortgage payments, student loans, and car payments can start to add up and you may feel as though you are drowning in debt. If you feel as though your consumer debt is getting the better of you, you don’t need to face it alone. There are debt management programs that can help you manage your accounts and get the upper hand on your debt.
A debt management program – also known as credit counseling -will help you evaluate your current financial situation, develop a budget, and even negotiate with your creditors for lower payments and the best interest rates available to you. Your credit counselor can work out a repayment schedule that works for you, and eventually, you too can become debt-free. Compare debt management programs and find out what program is best for you.