Debt consolidation will roll several debts in one payment. It is effective if the debt is never excessive. You also require maintaining a good credit score and planning well to keep your debt in check.
Debt Management, But Not Elimination
Moving each and every outstanding balances of the loans to a single lender will aid you in managing your debts but will never reduce your owed amount. You need to clear off your loan and make payment for the interest till the loan gets repaid. Set a goal of using the debt wisely.
Make Use Of the Below Mentioned Steps:
Pay Debt Of Your Credit Card
You may not have borrowed out the maximum that is allowed for the credit card, but paying off your balance is one of your priorities. Always pay more than the minimum amount on the card balance. Rates of interest that are charged on most of the credit cards are much higher than those that are found on other loans. Make your credit card payment once you get your statement. It will aid you in reducing the interest that you will be charged. Reduce the usage of your credit card for some time. Stop subjecting higher balances to the interest and use cash to identify various ways of spending less.
Assess Alternatives Based On Real-Estate
Review the rate of interest on the existing debts. The interest rates of credit cards as well as unsecured personal loans are higher than that of other secured debts such as mortgage, home equity loan or auto loan. If you calculate that the rate of interest on a home equity line of credit is less than that on credit cards, auto loans and other personal loans, then utilizing the option of borrowing through the line of credit will save some money.
When Consolidating Debt Is A Good Idea?
It is difficult to get hold of your debts, when credit card payments or payments on consumer and student loans continue to act as a burden on your living expenses. The monthly bills make some people opt for debt consolidation as the alternative option. A useful way of streamlining your debts will aid you in managing such a huge financial stress and lower costs. But it is not for everyone. You should consider few things before you opt for debt consolidation. There lie two main reasons for considering debt consolidation. One is to save money by availing a more favorable rate of interest and another is to encourage timely payments.
Consolidate Debts At Lower Interest
You may have some credit cards with rate of interest in double digits. If you made timely payments for the last years and maintained a good credit then you have a chance to qualify for a loan with a much lower rate of interest. So if you consolidate the debt of your credit card with a loan of cheaper rate of interest, your interest on the loan’s life will drastically get reduced. Moreover any loan will have a term set which will act as a brake on that amount of interest that you pay. Customers are seen to pay the minimum amount when paying credit card balances. It often covers up only the interest and hardly involves the principal. So if you continue doing this for many years, whatever you will pay in interest on a purchase will end up being much more than the initial principal. In case of loan, the debt needs to be cleared off by the loan term’s end.
Consolidate Debts At Fixed Rates
In case of a loan with a variable rate of interest, you should consider debt consolidation to bring down a fixed rate of interest. So a fixed rate will give you an idea of the costs of your interest. It is irrespective of the movement of the market’s rate of interest that controls the rise and fall of variable rates. Thus you will not be at a risk of getting affected with an increase in the rate of interest. So if keeping a record of some credit card bills made you forget either one or two payments, then consolidating debt will help. To have a good credit score you need to make timely payments. If consolidating several debt payments into one can aid you, then do that as it will be worth considering.
Consolidate Student Loans
Consolidating debts in case of student loans is a complicated decision. You should on the basis of how fast you wish to clear off the loans and how much of the debt is from the federal loans. Federal loans come with some consumer protection and it would be lost if you opt for debt consolidation. Student debt consolidation can be considered only once. So make sure you are selecting the most beneficial moment before you do it.
So consolidating debt should be a part of a bigger strategy to reduce debt. Decide wisely before you opt for debt consolidation.