People who live in the United States have become so accustomed to living under the crushing weight of debt that we hardly realize how damaging they are. We want to provide better resources to our clients so they can better manage their debts. Because we want you to make the best decisions for your financial future, we are working hard to educate you about simple financial issues that can make a big difference in your life. First, let’s analyze what debt consolidation means. unitedtribesofmichigan.org has more information
The consolidation of debts as a step to get out of them
We all know what it feels like to deal with the suffocating weight of debts that we simply can not pay. It does not feel good at all. When you are forced to choose between paying your debts or feeding your family, it is time to look for loan options that can help you in difficult times.
Debt consolidation is a viable option for people who want to combine all their debts and bills in a single payment. Combining all debts in a single payment will not decrease your debt, but it can make it much easier to pay and track your financial situation. Consumers who regularly forget to make their payments or have difficulty making them on time can benefit by organizing their debt in this way.
Credit cards and loans are not necessarily bad, but if they get out of control and the amounts accumulate, they can make a prosperous financial future move further away. This is the reason why debt consolidation can be the smartest option when there are too many different types of payments to track or if interest rates have been too high. Instead of managing multiple debts, you would have to make a single payment.
However, it is important to remember that debt consolidation can solve a symptom of having debts, but it will not solve any of the underlying causes that led to having them. For a more successful financial future, it is also important to practice responsible habits of spending, saving and budgeting for a more permanent solution. Commit to having and even writing a financial strategy and adhere to it. Consider getting an extra job to make more money, cut unnecessary expenses and live with less than you earn to start paying your debts.
How debt consolidation works: The four types
Standard debt consolidation
When a lender, a credit union or a bank consolidates its debts into a new loan, it usually has a lower interest rate than what it was collectively paying previously. However, you should make sure you get lower interest rates than before, because if you have a low credit score, the interest rates could be higher than it would be worth.
Balance transfers occur when you transfer all of your credit card debt to a new or existing card. Often, this is done due to promotions such as low introductory interest rates or offer periods without a payment requirement. However, generally low interest rates are usually only for a promotional period, which means that they will expire and return to normal interest rates. Keep in mind when the expiration date is and what the regular interest rate will be. Sometimes, having many debts on a single credit card can also damage your credit score. Consider your credit limit. It is important to avoid getting too close or exceeding the credit limit. Also, avoid applying for too many credit cards at once, as this can damage your credit score as well.
Net worth of a house
If you already have a mortgage and have some equity in your home, you can borrow money using your home as collateral to pay off credit cards or other small debts. To do this, you must have a decent amount of accumulated net worth in your home. The estate is the value of the property after subtracting what is owed by it. These loans generally have significantly lower interest rates, but do not forget that your home would be at risk. You could face foreclosure if things go wrong, so be sure you can make the payments every month.
Student loan consolidation
This is similar to a standard debt consolidation, except that the loans are normally made by the federal government, which offers flexible payment schedules and low interest rates. Consolidating your student loan debt can give you a significantly longer term to pay off the debt, and maybe this is what you need. But keep in mind that sometimes you may lose some of the benefits of the borrower that were included with the original loan when you consolidate that debt.
If you expect to simplify your life and your budget, debt consolidation can be a viable option for you. If you decide that debt consolidation is the next step towards your financial freedom, then you can consider all the above ways to do it and choose the smartest option for you.
- Do not spend the money your refinance releases each month. Save it or use it to pay off your debts.
- Negotiate! Do not be afraid to ask your bank, credit union or credit card provider to provide you with a better offer if you want to continue to maintain it as a customer.
- Shop around everywhere before signing.