Debt consolidation may sound a complex fiscal procedure but in reality, it is just polar opposite to what you belief. When you consolidate debt, your current payment liabilities are combined into one, thereby obliging you with only a single pay-off after scheduled interval as agreed upon. Usually, the negotiated term is settled at much a lower rate that shears off the regular payable amount. Debt consolidation, thus, makes it easier for a debtor to track his payment record and also clear his outstanding dues as immediately as possible. This article discusses about how to consolidate debt and whether you will be better off by opting for this debt relief mechanism.
How to consolidate debt?
There are two ways to consolidate your existing debts. Firstly, you can make an effort on your own by directly approaching a financial house for a consolidation loan. Imagine, you have borrowed four loans, A, B, C and D. If your present fiscal condition does not allow you to handle all four regular payments at different intervals, you may take out another loan E that covers all of your existing debts without a much better term and rate of interest. E is a consolidation loan.
Alternatively, you may hire a professional debt consolidation agency to guide you throughout the process of debt consolidation. It negotiates with the debtors on its clients’ behalf to lower the interest rate and keep the terms more favorable. After successful negotiation, the agency collects a certain amount from you and distributes the funds among the creditors. In exchange of its service, it receives a certain amount from you on every periodic payment.
Will debt consolidation be a suitable choice for me?
It is not easy to give a one-word answer. This is because; one must consider the specific practical possibilities. On the surface, it can only be said that like other fiscal choices, debt consolidation also has some pros and cons which one must have a clear understanding of. A calculated measure is necessary to get the maximum benefits out of debt consolidation.
What to consider?
There is a roster of factors to consider before you finally decide on consolidating your debts. Just take a look at them.
- After consolidation of debts, your periodic payment will be less than what you are paying now. But the bleak side is the repayment period will extend to a longer time frame.
- You may apply for a secured debt consolidation loan too by putting up any physical asset as a guarantee. If you can’t afford to pay, the lender will possess your property. As less risk is involved in transaction, there is a higher possibility of getting better rate on interest.
- Debt consolidation clicks with your objective of managing debts more efficiently. Just imagine how easier it will be to remember one scheduled payment and due date instead of worrying about multiple debts.
It is important that you calculate other expenses of consolidation. These expenses include processing fees and other charges which won’t be a trivial sum on your pocket. Understand the contract terms if you are proposed a debt negotiation scheme or have opted for the same.