Many financial analysts have expressed their concern over the ever increasing consumer debt in the U.S. According to a report by the Federal Reserve, revolving debt in America stands at $796.5 billion. Therefore, it is no wonder that a lot of Americans are drowning in credit card debt. Many debtors choose debt settlement programs to eliminate credit card debt. This can be a wrong decision because debt settlement badly damages your credit rating. If you have several credit card debts, then debt consolidation can be the right choice for you. Read on to know more.
What is debt consolidation?
Debt consolidation is a debt relief program. This process involves the following steps:
Firstly, you would need to approach the financial institutions for a consolidation loan.
Secondly, you would need to negotiate with the lenders over the terms and conditions (for instance, a low interest rate) of the loan.
Thirdly, if the lender approves the loan, then pay off all your debts with this loan.
You may not find it easy to consolidate debts yourself. In such a situation, you can consider hiring professional help.
What are the advantages of debt consolidation?
Many debtors struggle to make multiple payments every month. With debt consolidation, they can make a single monthly payment. This would help them to organize their finances and save more money. Also, the “single monthly payment” arrangement reduces the stress on their life.
Consolidation loans are usually stretched over a long period of time (20-30 years). Therefore, you will have the advantage of low monthly payments.
Most consolidation loans are secured loans. This means that the loan is backed by collateral and the lender can recover his money if you fail to repay. Since the risk involved is less, the interest rate is significantly low. So you can save on interest.
Does debt consolidation hurt your credit score?
A lot of debtors are rather confused about the effect of debt consolidation on their credit score. Actually, debt consolidation does not cause any major damage to your credit.
While consolidating your debts, you are defaulting on the original payment plan. This would have some negative impact on your credit score. Nonetheless, debt consolidation does not ruin your credit like debt settlement or bankruptcy. This is because it is not a debt reduction program.
You can easily repair the blemishes caused by debt consolidation, if you make timely payments for a few years. You can also request your creditors to remove minor negative remarks from your credit report.
Remember that debt consolidation will eliminate only your unsecured debt. If you have secured debts then consider other debt relief options like bankruptcy.
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* The Fair Debt Collection Practices Act
* Reasons not to file Bankruptcy or Settle Your Debts
* Can you go to jail for not paying your debts?
* How to settle your debts on your own
Well I have a situation were I got some stuff for a friend with my credit and they have not madepayments now I am the one getting harrased is there anything I can do toget the stuff back from them…or will taking them to court work for me please help I dont know what to do.