Debt Consolidation FAQ

The economy is at the lowest many people have seen and it has come at a time when you’re probably facing a financial crisis of your own.  Not only are you in a bad state financially, but the economy is working against you, i.e. higher gas prices, mortgages and taxes.  If ever there was a time to get real about debt consolidation and credit card debt, it’s now!

First, you need to know what your exact position is. Do you know your credit score?  If not, then finding this is your first mission.  Next, you need to find out how much debt you’re in; the amount outstanding; the interest rate you pay; and the monthly payment.  If you have anything that has a lower rate of interest; perhaps you’re a recent graduate and your student loans aren’t due yet for example, these you can leave for the moment.  You need to find the credit cards, store cards, loans, etc… that have high interest rates.  Concentrating your debt consolidation and credit Card debt efforts on these will help you reduce your monthly outgoing payments, as well as get rid of numerous high interest payments being added on each month.

What you need to remember is that the amount you’ll be charged to pay off debts, is likely to be higher than the outstanding amount; so contact your creditors, tell them what you plan to do and ask them to send you a final payment invoice.  Make sure you get this in writing so that when you pay off the debts, the creditor can’t come back to you later asking for more money.

Once you know how much you would need to make a difference to your personal economy, you need to look around for a financial organization that will give you a loan to cover this.  Your credit score will affect the feasibility of this option greatly, as the worse your credit score is, the higher the interest rate you will be charged.  Check out a few possibilities for raising the money for your debt consolidation and credit card debt reduction exercise.

Analyze each loan offer carefully and determine which of them gives you the best financial option.  Assess whether a slightly higher interest rate over a shorter period of time is better than a lower interest rate spread out over more years.

Once you get your loan check to cover the final payments to your creditors, make sure you use it for debt consolidation.  Putting yourself on a firm financial footing is a far better gift to yourself than a visit to the spa, even if you feel you need it after having realized your debt.

Debt consolidation and credit card debt is a very murky subject. In today’s spiraling economy, many people are thinking about consolidating their debts and credit cards debt. There are seven reasons to consolidate your debts. These reasons are:

1.  To reduce your monthly payments;

2.  To reduce your finance charges;

3.  To stop creditors and bill collectors from calling you;

4.  To combine all payments into one single monthly payment;

5.  To get out of debt;

6.  To pay off your debts faster; and

7.  To become financially stable.

Most Americans have debts. I know many people who are deep in debt because of student loans, car payments, and credit cards.  Most people consolidate their student loan and credit card debt. Consolidating your student loan debt allows you to refinance your student loans into one single loan payment. This can significantly reduce your monthly payments. It also can improve your credit rating which will help you if you need to rent an apartment or buy a home down the road.

Consolidating your student loan debt can extend your payment terms from ten years to thirty years. This will allow you to free up money so you don’t get deeper into debt while trying to pay your other fixed expenses. The advantages are good, but in the end you are paying the student loans for three times as long; so the debt will remain on your credit report for a very long time and you may end up paying more interest due to extending the length of the term. I think whether or not you consolidate your student loans is up to you, but you should consult a financial specialist before deciding either way.

Consolidating credit card debt can also be tricky. Most people consolidate their credit debt for the following reasons:

1.  Their interest rates are too high;

2.  The annual fees are too expensive;

3.  Consolidating the credit card debt as a personal loan;

4.  Because they have a bad credit score; and

5.  The credit card company is paying you to consolidate your credit cards.

Credit card companies are known to slip in hidden fees, and if you choose any of these reasons to consolidate credit debt please be cautious and read all of the fine print in your agreement. You should talk to a credit specialist and see what your options are to get out of debt before consolidating credit debt.

A consolidation loan is a much better alternative than debt solution programs. However, these loans do temporarily negatively impact your credit score. While, debt solution programs use a middle man to disburse payments made by you to them, and then they decide how much to pay your creditors. It is reported to all three credit bureaus and will negatively affect your credit score.

Debt consolidation and credit card debt can be a tricky issue to navigate through. Please consult a financial counselor before consolidating any debts. Hopefully you will be on the road to being debt free soon!