Debt consolidation is one such term you may frequently hear if you are having multiple debts and monthly bills to pay off. Many financial experts advise it. But when it comes to an individual debtor, the concept of debt consolidation may be a bit confusing. Here we will put forth a few such things that everyone should know about debt consolidation to decide whether it is a good or bad move.
Planning for debt consolidation
Let’s review a step by step approach to it.
- List the entire monthly unsecured bills and the amount you owe.
- Add these to determine how much you may be able to afford to pay off each month.
- Set your goals as if how you can eliminate these debts in a window of three to five year.
- Contact the lenders to identify their possible consolidation packages and know the payment terms as primarily the interest rate, number of years of payment, monthly payment terms etc.
- Next, compare both these costs to make a decision whether to go with debt consolidation or stick to your current repayment pattern.
One such scenario where we can say debt consolidation will be bad is that if you don’t change you habit of being extravagant and irresponsible on paybacks. If you keep on spending uncontrolled with your credit cards or taking out more loans than affordable, you may soon be falling into the same chaos in a short while itself even after doing debt consolidation.
Debt consolidation with a limited income
It may not be ideal for the limited income people to choose debt consolidation. You should have a good credit score and a solid monthly income to convince a lender. However, with a limited income, there are options to consult a non-profit credit counselor who can advise you to find out a better debt management plan for you.
There are various debt consolidation services available under different branches of debt relief. Some offer credit counseling and effective debt management services. Other few debt consolidation services work on debt settlement. The credit unions and banks offer debt consolidation loans. Each of these has its own risks and benefits based on situational factors.
Are you ideal for debt consolidation?
You already know that there cannot be a clear cut answer for this unless you assess your exact debt situation in depth. However, in general, we can say that those who are overwhelmed with the burden of unsecured debts as personal loans, credit card payments, accounts in collection, and finding it difficult to cope up with the huge interest rates and penalties, debt consolidation may offer a relief. At least, instead of many, it lets you focus on making just one monthly payment.
Choosing a debt consolidation plan
Once you choose to go with debt consolidation, there are various options available to confuse an individual. As per the recommendation of Federal Trade Commission, it is ideal to consult an authorized non-profit credit counseling center that can assess your situation and advise the best debt consolidation plan suitable for your needs.
Experienced credit counselors can educate the consumers about different options and the risks and benefits associated with each. These services are usually free and credit counselors can be now easily accessed over phone or for in-person interviews.
Author bio: Mark Stevenson is a credit advisor working for a credit bureau at Wall Street, offering expert debt consolidation advisory for the public. He also used to post public interest financial articles and advisory on leading economic websites and blogs.