Guide to Understanding Debt Consolidation

If you have been having difficulties making your monthly payments on your debt, now is the time to start thinking about debt consolidation. Debt consolidation can reduce your interest and greatly lower the monthly payments on your credit debt.

Consolidating your monthly debt will take equity or a favorable credit rating. For these reasons, it is good to consider debt consolidation before you find yourself too financially strapped.

Debt consolidation has been around as a practical means of debt relief for several decades. It is the only means of debt relief without an adverse affect on your credit rating. Debt management and bankruptcy options can leave your credit record marred for years.

You will find many banks and lenders in your local community and online who specialize in debt consolidation. They can help you work out a specific plan for your unique circumstances, but the basics of debt consolidation are simple.

You will be consolidating all of your credit debt under one lender. This means that you will be reducing many payments into just one. This alone makes the process of paying your monthly bills easier. Because you are consolidating all of your debt together, you will get a reduced interest rate, which will help lower your monthly payments. Along with reducing your interest rates, you will be extending the term of your debt.  Extending the term of your debt has the greatest impact on lowering your monthly payments.

All of this will be put together in a proposal by a bank or other lending agent. The proposal must clearly spell out things like your total debt, the interest rate you will be charged, and the term, or length, of your obligation.  If at any point, some part of the proposal is not clear to you, ask the lender to explain it. It is important that you keep asking until all terms, agreements, and obligations of the proposal are understood. Asking a lot of questions is not an indication that you are ignorant; it is an indication that you are smart.

Shop your debt consolidation between two or three lenders in order to get the best deal. Shop for the one with the most important variable to you. These may be interest rate, term length, or monthly payment. Do not sign anything that you do not fully understand.

Let the potential lenders know that you are shopping the consolidation between a few firms. The stress of competition may lead to a better initial deal than you might get otherwise.