A majority of us see our credit cards as conduits of a better lifestyle. We treat them as keys of spending habits beyond our current financial means. While our credit cards are swapped we forget that we are the ones who will have to pay the bills and at the end of the year we are stuck with debilitating loans that eat their way into our family finances and credit scores.
In most of the cases we have seen, the burden of multiple credit card debts and other utility bills becomes too overwhelming for families to bear. In such a befuddling financial turmoil most families end up opting for payday loans and 0% balance transfer credit cards. While they do seem helpful, they do nothing but add to the financial burden.
So what is the more financially friendly option?
A friendlier option is debt reconciliation. This merges all your current debts, including your credit card debts and outstanding loan payments, into one. Debt consolidation makes your existing financial situation much more manageable. And in all probability (if you are borrowing the money from the right source), you will end up paying an interest rate that is much lower than the rates you were paying on your multiple credit cards.
We especially recommend debt consolidation loan for those who are standing at the lower end of a good credit score. An existing credit card debt visibly dents your current credit score. When you go for debt consolidation you will automatically be transferring your credit card debts to an installment column that will not interfere with your credit score.
What are the currently existing debt reconciliation options?
Ringing up a debt consolidation company is one of the best things you can do when you find yourself in a sticky financial situation. Although many of these companies are out there to make profit out of the existing finance system, most of their policies are really helpful when it comes to helping people out of a bottomless pit of debts.
Here are the few kinds of debt relief companies that you will come across while looking for debt reconciliation online–
- Debt Reconciliation/Consolidation Companies – these are the true helpers during high financial stress. They will lend you money irrespective of the status of your credit score. In most cases the money is loaned out as unsecured personal loans that can be used to pay off all debts, outstanding bills and individual money lenders. After taking out a reconciliation loan you will have to manage just one debt with a fairly low interest rate. We have seen people pay off consolidation debts within terms of 2 to 5 years, with as low as 8% interest.
- Debt Management Companies – these are not true debt reconciliation companies. In fact, while looking for debt consolidation, this is one kind of company you need to steer clear of. They work with the lenders you owe money to and they try to negotiate lower interest rates. Although they are authorized and require legal fees, they are hardly ever successful in bringing down the rates and the payments without affecting your credit score.
- Debt Settlement Companies – they are quite similar to the debt management companies. They work with the lenders as well to help negotiate a lower interest rate and lesser principal payment. Since they deal with the credit card companies and your bank directly, they run a high risk of permanently damaging your credit record in exchange of getting marginally lower interest rates. And did we mention? They charge a handsome fee irrespective of the final outcome of the negotiations.
As you can understand not everything is hunky-dory once you start looking at debt reconciliation options. As a matter of fact, the last two kinds of companies mentioned in the previous section barely make it to the category of straight debt consolidation companies.
While looking for debt reconciliation options and consolidation loans you should conduct a thorough background check on each and every potential option you have. Since testimonies and client feedback are not an option for most debt consolidation companies, you will need to rely on a number of registered website reviews. Do not forget to check official websites, government registered websites and Better Business Bureau before signing any contract with the companies.
What are the mistakes that can further ruin your finances after you get a debt consolidation loan?
Debt consolidation loan is not your key out to financial freedom. You cannot hope to get out of all your debts for good with debt consolidation loans, since you are just transitioning from one kind of loan to another. You may have to pay a lower interest rate on consolidation loans, but you will still have to pay the principal amount.
In case you are hoping to fall back on your credit cards after you are done paying the previous credit card debts, it won’t be long till you find yourself under a mountain of unpaid bills and defaulter’s notices once again. You will be plagued by terrible credit scores that will disqualify you from getting any further loans from registered banks and credit unions. Getting out of a financial fiasco takes a certain level of commitment where you should keep yourself from using your credit cards at every excuse.
So unless you are ready to cut up your credit cards, device a practical budget and are ready to live within your means you should not be applying for a debt consolidation loan right now.
Debt consolidation is not the best option always, but it is also the only option for most with bad credit records and a cornucopia of unpaid debts. At the end of the day, it is definitely a relief to know that all your credit card bills and other minor loans are paid off and you are paying a much lower interest rate. If you follow a structured spending plan and enforce restraint on your spending habits, debt consolidation can definitely become the fastest vehicle to lead you to a debt-free life.