A lot of people are in some form of debt. Some incur theirs through their mortgages, while others acquired their debts through credit card use, medical bills and student loans among others. The problem with having debt is that if it is not addressed immediately, it easily piles up until it becomes unmanageable. In such a case, it can result to a financial crisis and other serious problems such as low credit rating, inability to apply for a loan, foreclosure, bankruptcy, and relationship strain.
If you happen to be one of those people looking for a solution that can help address your piling debts, then a debt consolidation program might be for you. Simply put, debt consolidation is a method that entails you to take out a loan to pay off current debts. In this process, you combine multiple debts together and then pay them in a monthly basis at a lower interest rate. In short, it simplifies the way you pay your debts by bringing them altogether instead of paying creditors individually.
Debt consolidation presents you with several benefits, especially if the program you pick suits your situation. Below are some of them.
Lower interest rate
One of the main reason why a debt consolidation plan is an appealing debt solution is that it can help lower your debts' interest rate. This is in turn significantly reduces your monthly interest payments, allowing you to use up some of your hard-earned cash to pay for other essential needs. Lower interest rate can also permit you to apply your interest savings to the loans' principal, resulting to faster debt pay off.
Reduce or eliminate late fees
If you default on your debt account, then penalty fees, late charges and interest rates eventually pile up, which make it more difficult to pay your debts. With a debt consolidation plan, all these things can be reduced, if not eliminated, at a level that you are comfortable paying so that you will not default on the plan.
Eliminate collection calls
Being in the midst of mounting debts is already stressful, and receiving calls from creditors on a daily basis can further add stress to the situation. If you are in a debt consolidation program, you will be provided by the consolidation company with a signed power of attorney prohibiting collection agencies and creditors from calling you.
Improve credit rating
The fact that you are in debt, not to mention that you have accrued late payments and defaults on your debts have a negative impact on your credit score. Once you enroll in a debt consolidation program and you start paying off your debts consistently, you will notice an improvement in your credit standing.
Receive free counseling
Most debt consolidation companies today provide free financial counseling to debtors who are willing to pay off their debts through a debt consolidation plan. By receiving free counseling, you will be able to fully evaluate your situation with a financial expert, and you will be provided with different debt relief options. Hence, you will be able to pick a program that is most suitable for your current financial situation.
Of course, take note that as with any other debt management plan a debt consolidation program will only be effective if you are truly willing to get things straight and wipe out all your debts. Also, keep in mind that this option is not suitable for every financial situation. So if you are thinking of using it to free yourself from debts, your best bet is to understand exactly how it works and know what other options you have before taking the big leap.