Most households are still reeling for the effects of the last global recession. This is evident in the increasing consumer debt. According to a report by New York Federal Reserve, the average household debt in the U.S as of 2015 is $132,158. Of this, $15,675 is on credit cards. Other loans include mortgages, auto loans, and student loans among others. In total, debt balance as of Q2 2016 is still rising.
One of the most frustrating aspects of falling deeply into debt is dealing with multiple creditors. This is a nightmare especially when you start receiving multiple reminders and your finances are still in the red. Due to these overwhelming debts, most household owners also have to contend with poor credit rating which only makes things worse. If you are struggling to handle multiple loans from different creditors, it is time to think about consolidating your debt.
Demystifying Debt Consolidation
When you are paying multiple creditors, it is easy to lose track of your payments. Worse still, you might end up paying more than what was in the contract due to late penalties. Debt consolidation involves taking a new personal loan from a lender to repay all your multiple debts. In essence, you now have one loan with the new lender and you don’t have to worry about multiple payments every month.
The loan may be taken through a debt relief company, home equity loan, a credit union or through your bank. However, if you have a bad credit profile, your bank and credit union will turn you down. A debt relief company on the other hand offers a third party service where a loan is negotiated with a financial institution at a lower rate and then all the other loans are repaid. This leaves you with one loan to worry about.
Debt consolidation bad credit loans help you to repay all types of loans including credit cards, rates, tax debt, outstanding bills and store cards among others. While there are many debt consolidation options around, it is important to understand that any package you choose should fit your unique needs.
Why Consider Debt Consolidation?
Before going for debt consolidation, you need to understand how it can actually help you. Debt consolidation is not for everyone and your financial advisor helps you evaluate the real benefits of going for the program. Here are just a few of the advantages you can get by consolidating your debt:
- Peace of Mind
Paying multiple debts is stressful and it is no wonder many homeowners are suffering stress-related ailments. You will have to deal with constant reminders and calls from debt collection services if your loan is due. If you are constantly worried about debt, you will not focus on the more important areas of your life and this will impact your career and even your social life. By consolidating debt, you will get a breather to focus on other areas of your life.
- Lower Interest rates
By consolidating your debt, you will enjoy lower monthly payment. Remember when you are paying multiple creditors, there are interest rates and other fees to consider but with one lender these do not apply. If you have multiple credit cards for instance, they come with astronomical interest rates that can ruin your finances. You will save a lot of money, which can help you start rebuilding your finances gradually.
- Repairing Credit Score
One reason you have poor credit rating is because you have been making late repayments. When faced with multiple loans, it is obvious that some deadlines will slip through your mind and this leads to deterioration of your credit score. When you consolidate your debt, the issue of late payments becomes a thing of the past. You will start repairing your credit score with time.
- Single Payment
A single loan repayment per month is a great way to start getting your finances back on track. You will be able to budget easily without the pressure of collection calls coming through your phone. It is easier to budget when you just have one debt item on the list as opposed to multiple, which drain every coin you have. It is even possible to start saving because you are saving on interest rates.
Different Debt Consolidation options
When reading debt consolidation reviews, you will realize there are different options for you to consolidate your debt. The most common include:
- Debt management programs: These are financial advisors who will help you consolidate your loan based on your budget. A credit counsellor is involved in finding you the best rates and they will then coordinate the repayment of the smaller loans. You will then continue repaying the loan through the company and your accounts will be frozen to help get your finances back into shape.
- Debt consolidation companies: These offer an unsecured loan to pay off your debts. They cater for people with bad credit profile but you should be cautious when choosing one. There are many online scams and you should seek recommendations from your financial advisor or friends before using a particular company.
- Home Equity Line of Credit (HELOC): This option allows you to borrow money against your property in order to repay other debts. This option is only viable if you are sure you can repay the loan without any difficulties. You will be putting up your home as collateral when you use this line of credit.
When looking for the best debt consolidation option, first compare them on top debt consolidation reviews. Debt consolidation is a good idea because it helps you get on top of your finances and also repair your credit score. By consolidation, your debt you can easily budget your money and improve your household’s finances. A debt consolidation loan reduces the interest rates you could have been paying. With the tougher credit reporting regime, it is now easier to repair your credit score and isn’t this what everyone with bad credit wants?