Check out any financial news report and it is clear that consumers are carrying a lot of debt. Good news for the economy, bad news for personal finances.
Topping the list of consumer debt is credit card debt, followed by student loans and automobile loans. Consolidating your debt is not always a necessary step, but if you find that you are carrying several credit cards, all with very high balances, plus you have student loans, a mortgage, personal loans, maybe even medical bills, and are not able to make the minimum monthly payments, then debt consolidation may give you the relief you need and get you back to a more positive financial position.
Debt consolidation options
There are several good options for getting your debt under control:
1. Peer to peer loans such as from Peerform, are unsecured personal loans to consolidate your debt. You will have one single monthly payment, automatically deducted from your bank account. P2P lenders are financed by investors.
2. Balance transfer: you can open a new credit card and take advantage of its offer to transfer your balances from all your other credit cards to this one.
3. Bank loan: if your credit score is excellent, then you can apply for a personal loan from a bank or credit union to consolidate your debt.
4. Home equity loan: if you own your home and your mortgage is in good standing, then a secured loan, guaranteed by your home, is a way to consolidate your debt. If you fail to make the payments, you could lose your home.
There are debt management and debt settlement companies that intervene on your behalf with your creditors. Oftentimes they can negotiate a lower interest rate and longer pay-out schedule. But, this can ruin your credit score. It is better to utilize one of the options listed above.
• Consolidating your debt will get you on the road to a debt-free life much more quickly.
• With an unsecured personal loan to consolidate your debt, such as from a P2P lender, you can obtain a more favorable interest rate, lowering your monthly payment. The process is easy and the payments are deducted monthly from your bank account, leaving you with very little to worry about.
• A debt consolidation loan or credit card transfer leaves you with a single bill, making it easier to manage your debt reduction plan.
Why not consolidate?
• If your struggle is only temporary, and you are sure that in the near future you will get back on track, then a consolidation loan is not worthwhile.
• Your debt balance equals more than half your income. If your debt is this high, and you do not see a way to get it under control within five years, it may be better to file for bankruptcy.
• Lack of commitment. A debt consolidation loan still requires you to be committed to paying off your debt. To open a new credit card account, or take out a personal loan from a peer to peer lender without a devotion to paying off your debt is a waste of time. Your debt will still be around to strangle you.
• It might be an appealing idea to transfer your balance to a new credit card, especially with a 0% APR transfer offer. However, transferring a large credit card balance to one card can harm your credit score.
You still need to budget
At the end of the day, you still need to evaluate how you came to be in debt. Take an honest look at your income and spending habits. Consolidating your debt will help you in the short-term, but without careful budgeting and controlling your expenses, you will find yourself in the same condition within a short period of time. Without financial discipline, you will find yourself slowly adding new debt to your consolidated debt. There are many online tools and even apps that can help you with budgeting. Or, you can seek out assistance from a reputable credit counseling agency.