Is debt crashing down on you like a hurricane? When the pressure becomes unbearable, some people consider filing bankruptcy. Why not consider a good debt consolidation program instead?
Debt Management Practices
Debt consolidation is only a temporary fix.
Debt is a symptom of the bigger problem of poor spending and debt management practices. True, some people have unexpected disasters, like the death of a wage-earning spouse. Most of us accrue too much debt because we spend more than we can afford.
The way you stay out of debt is by changing your habits. Commit to a written financial plan for your life and stick to it. Create a budget and buy nothing if you can’t pay cash.
Nevertheless, when living paycheck-to-paycheck, present circumstances are overwhelming. Under financial duress people ask themselves, how can I make ends meet and provide for my family?
Debt Consolidation Or Debt Relief?
If you do not need to use credit for awhile, debt consolidation may be the best of your less attractive options. Consider it breathing room while you change your debt management practices. A variety of programs offer different angles to debt management, such as the three below.
1. Debt Relief
Debt relief services attempt to negotiate your creditors into debt settlement. Credit card companies will sometimes agree to reduce your total debt and lower your monthly payments if they believe you will never pay the bill. Debt relief is usually better than filing bankruptcy. You may owe income taxes on the eliminated balances, and your credit rating may be impacted more negatively than the options below.
For most people, choosing a reputable service is the best route. Some debt relief firms will charge fees up front, others take a percentage of the savings. Do the math before you agree, and get it in writing.
Do you have the fortitude to go it alone? Using the right strategies with the help of a good DIY program, you can negotiate your debts directly with creditors.
2. Debt Management Programs
Debt management counselors help you create a plan for paying off your loans and credit card accounts. There are different strategies, such as paying off the highest interest rates accounts or smallest debts first. A minor form of debt consolidation is rolling several credit cards balances into one, so you only have one payment to make.
Do-it-yourself guides are available. It will help you to organize your finances and get the concept of a plan in your mind, even if you seek professional debt management services later.
3. Debt Consolidation Loans
Debt consolidation loans issue one loan to pay off your outstanding credit debt accounts, car loans and mortgages. Unlike debt settlement, you are not eliminating money that you owe.
Sometimes the payment are lowered to an amount you can presently afford. The term may be extended, so you end out paying more in interest over time at the lower rate. This may be a necessary part of your immediate financial survival.
Be wary of rolling unsecured credit debt into a debt consolidation loan secured by your home, unless you are positive you can make the payments. Counselors in a highly rated debt management service will help you make the best choices.
Credit cards carry highest interest rates (especially if confiscatory penalty rates have kicked in). If you start debt consolidation before your credit rating is destroyed, you can probably secure a lower interest rate for the new loan.
One manageable loan with a reasonable interest rate can help you get out of debt faster, IF you pay it off as soon as possible. Using every available penny to pay down this new loan will also help you gain discipline in managing your finances. Use the savings on the interest rate to pay down the new loan. An income tax refund is not a gift or free money – apply the tax refund to pay off the principal.
Debt consolidation loans can be lifeline when you are drowning in debt. Just remember, debt is usually a symptom of poor spending habits. To stay out of debt you must change your whole financial lifestyle.
The life freedom and relief from stress is worth it!