Considering Debt Consolidation
Sometimes getting out of debt isn’t as simple as repaying a bit of your loan every month. If you find yourself unable to make minimum payments on your accounts, consider debt consolidation. Debt consolidation works in just the way that it sounds like it would – all of your debt is consolidated into one single payment. Rather than paying different creditors at varying interest rates, you will make one payment, usually at a lowered interest rate.
There are a few considerations when choosing a debt consolidation program, including collateral, repayment schedule, and the funding of your loan. A lot of debt consolidation companies are in competition to get your business, so you have the upper hand in choosing one that will best suit your needs. The goal in debt consolidation is to owe less per month at a lowered interest rate.
When borrowing in debt consolidation, know beforehand how much you’ll need. Opening an excessive line of credit will only drive you deeper into debt and increase your interest rate.
One important step in debt consolidation is collateral. Collateral is basically an exchange for a loan – for example, you can put up your car or home as collateral, and if you don’t make the necessary payments, the creditors become entitled to that property you agreed to put up as collateral. When considering collateral, you might want to offer high-value property; this will provide incentive for the lender to give you a lowered interest rate.
The second consideration is the repayment schedule. The longer the span of the loan, the higher the interest rate will be, so it’s advisable to go with the shortest repayment schedule that you can manage.
Lastly, you will need to find a company to fund your loan. An effective strategy is to go for a small finance company. Often these companies are startups offering lower interest rates to gain new clients.
When you’ve chosen a debt consolidation company, they will assess your financial situation and determine where to go from there. A professional counselor will evaluate your financial standing, and the company will begin to negotiate with your previous creditors. Usually, these creditors will accept their negotiations since the debt consolidation company can guarantee payment, and that’s better than the alternative of possibly not getting paid.
The final step in debt consolidation is the easiest – once all of your debts with your other companies have been addressed, you will be able to start making payments just to your debt consolidation company, and they will take care of the rest. Debt consolidation is a viable solution when you find yourself in financial trouble, so it’s a worthwhile investment to avoid bankruptcy.
