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Debt Consolidation

Are you feeling stretched by credit card bills, loans or their high-interest payments? Debt consolidation may be an option. .

Restructuring your debt with new lower monthly payments and interest rates without negatively affecting your credit rating sounds almost too good to be true. However if done correctly it can be a good way to get out of debt. It can also make your financial situation much worse if you are not careful. You bundle your multiple bills into one payment, save money, and have spending room to spare.

Advantages of debt consolidation

  • Lower interest rates
  • one monthly payment
  • Reduction or removal of penalty charges
  • Obtaining a payment plan

Disadvantages of debt consolidation

  • Paying more total interest charges over the longer term of repayment.
  • Risk of getting into further debt and/or losing collateral (home, car, etc.)

After consolidating your debts, it is crucial that you do not use your credit cards again to prevent yourself from getting into further debt.


Two Types of Debt Consolidation

There are two types of debt consolidation: a debt consolidation loan and a debt management plan. You can either get a debt consolidation loan to lower your rates and payments or use a debt management programs letting a third party deal with your creditors.

  1. Debt Consolidation Loan

    A debt consolidation loan is any kind of loan used to lump all your debts into a single entity. You are then paying much less in interest and only paying one bill. Although the interest is lower you generally pay more interest over the life of the loan

    To get a debt consolidation loan you need to get a get a home-equity loan or a personal loan.
  2. Debt Management Plan (DMP)

    A debt management plan (DMP) may work for you if you need to consolidate your bills and get out of a debt crunch. A debt management plan is not a loan but a process where a credit counseling agency negotiates with your creditors to obtain a lower monthly payment extending over a period of time to satisfy all of your current accounts. Then you send the agency one payment each month and the agency uses your payment to pay your creditors.


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