It’s that time again: You need to go check the mail, and you don’t want to because you know it’s going to be filled with bad news.
You’re already avoiding your phone because people are calling you looking for money.
You’ve had a tough time financially in recent months, and you made some difficult decisions to feed yourself and your family in response.
One of those decisions was to run up some debt on different credit cards, as it was the only option you had to avoid serious problems, even temporarily.
Now those bills are coming due, you’re not sure how you’re going to pay them, and you have no idea how you’re going to manage all of these different accounts.
In short, you’re flailing about, hoping for a solution but not sure if one exists.
However, there is a possibility for a lot of people, and that possibility is known as debt consolidation.
Alleviate Financial Solutions has helped countless people all over the United States bring their bills under control and simplify the management of them.
Below we’re going to provide a brief overview of debt consolidation and how it works, particularly when you work with us.
What Is Debt Consolidation?
At its most foundational essence, debt consolidation is a simplification process.
It’s scarily easy to run up consumer debt in several forms, and before you know it, you’re managing and making payments as often as possible on 10 or 12 different accounts or even more.
That alone is stressful, and it’s particularly stressful when one considers the high interest rates involved.
According to US News and World Report, the average interest rate for credit card debt in the United States ranges from 16.39 to 23.45 percent.
Many individual accounts have much higher interest rates, which can make it practically impossible to pay debts off.
Debt consolidation simplifies all of this.
When you consolidate debt, you take out a “new” loan that basically consists of the debts you already had and were trying to pay off.
This new loan is now the only payment you’ll have to make every month, and in many cases that new payment comes with a lower interest rate.
Following the example above, if you have debt on 10 credit cards, debt consolidation would wipe out those debts, move them into a new loan and you’d pay down that loan.
You would have one account to manage instead of 10 and getting ahead of that debt becomes much easier.
When Should You Consider Debt Consolidation?
There are many situations where debt consolidation would make a lot of sense.
For instance, if you’re working and just struggling to keep up with your high-interest-rate credit card payments, debt consolidation could be a good way to go.
That’s because you may be able to make minimum payments, but you’re not able to pay much or any more than that.
As such, you’ll always be chasing that debt.
According to NerdWallet.com, if you make monthly payments of $100 on a credit card debt of $10,000 with a 20-percent interest rate, it would take you more than nine years to pay off the balance.
If you were able to marshal all of the payments you make into one larger payment on one debt, you’d most likely pay your debt down much faster.
In many debt consolidation scenarios, you’re going to be paying a lower interest rate, so that couple with a larger payment could mean that before long, you see a light at the end of the tunnel.
This is just one of many situations in which debt consolidation is worth considering.
Debt Consolidation Pros and Cons
As is the case with any financial strategy, debt consolidation comes with positives and negatives attached to it, depending on the person who is considering this step.
Alleviate Financial Solutions understands that this is a personal decision for everyone, which is why we’re presenting some common pros and cons of debt consolidation below.
Pros of Debt Consolidation
Your Interest Rate Is Lowered – The first possible pro of debt consolidation is that it’s possible that you’ll pay a lower interest rate, thereby reducing the amount you pay overall to eliminate your debt.
Your Loan Has a Term – Paying off credit card debt a little bit at a time can seem like a treadmill with no end in sight.
Debt consolidation sets a term on your loan, and if you make the payments on time your debt is eliminated when the loan’s term is complete.
You Could Boost Your Credit – Once again, everyone is different, but for some debt consolidation could boost their credit.
If someone takes this step whose credit cards are maxed out, this could lower their credit utilization and help boost their score.
However, there are cases where consolidating your debt may hurt your credit score.
That is why It is important to know how to do this without hurting your credit.
Your Life Gets Easier – As mentioned above, debt consolidation reduces the stress and hassle of chasing down multiple credit card payments every month.
You make one payment to one borrower.
Cons of Debt Consolidation
Your Term Lengthens – Debt consolidation can, in some situations, leave you in debt for longer than you would have otherwise.
You don’t want to pay down a debt consolidation loan over four years if you could have paid your credit cards off in three, unless the overall numbers work better that way.
Be careful to measure this factor meticulously.
You May Put Assets At Risk – Some people who pursue debt consolidation have trouble getting approved for any type of credit, which means that some in this position will need to secure their debt with an asset – such as a home, car or valuable item – in order to get funding for the loan.
That adds to the stress of a situation if you have trouble making payments down the road.
You Could Add to Your Debt – Debt consolidation means that suddenly, you have a lot of room on your credit cards.
It can be tempting to start using them again, only to wind up in more debt than when you started if you’re not disciplined in avoiding them.
Debt Consolidation vs. Debt Settlement
There are debt relief and management options out there for people, so much so in fact that it’s easy to get some of them confused.
One common source of confusion involves debt consolidation vs. debt settlement.
These are not the same thing, and Alleviate Financial Solutions has a brief explanation available to you here if you’d like to read and watch more about it.
Below is a synopsis of this dichotomy.
Payoff Time – With a debt consolidation loan, you’re basically taking out a new loan and paying that off over time.
Debt settlement involves negotiating with creditors to agree on a lower payoff amount and then paying it immediately in many cases.
Credit Scores – Once again, every situation is different, but in many cases a person who successfully pursues debt settlement will see his or her credit score go down, at least temporarily.
That’s the opposite of what often occurs with a debt consolidation.
Accounts – In many debt consolidation situations, the person who owes the debt will still have his or her credit card accounts in an open status after their debts are paid by the debt consolidation company, debt settlement often involves closing those accounts after the lower balance is paid.
Generally speaking, each approach is better for different situations.
Those who are working and can make payments would usually be best served by debt consolidation, while those who are struggling to make their minimum payments each month and don’t see a way to debt freedom or who want to avoid bankruptcy may want to look at debt settlement.
Speaking to a professional who understands this situation would be a very wise first step before formulating a plan for going forward.
How to Qualify for Debt Consolidation
Debt consolidation is a loan.
It’s a loan that’s used to pay off your existing debt and to establish a new lender-borrower relationship between the loan company and the borrower.
As such, a person who pursues debt consolidation needs to qualify for that loan.
Fortunately, there are options available for people whose credit scores are far from elite, but the lower your credit score, the more difficult and expensive it can be to secure funding for that loan.
The best way to handle qualifying for a debt consolidation loan is to speak to someone who can help you get an idea of what may be best for you.
That involves evaluating several factors, including but not necessarily limited to:
- Your income
- Your credit score
- Your interest rate on a debt consolidation loan
- The amount of time it would take to pay off that loan
- Whether there are better options available.
These are complicated decisions, and if you need this type of help, you should do what you can to speak to people who handle these situations every day.
It’ll help you come to a better decision on how to proceed and you’ll make your final decision on a foundation of facts as opposed to ideas.
You should feel free to contact our team of professionals at Alleviate Financial Solutions at any time.
We will walk you through our process and help you get moving towards getting your finances under control.