The Truth about Debt Consolidation
Today's turbulent economic conditions have motivated many consumers to find ways to reduce their overall debt. However, despite this push to minimize debt, overall consumer debt in the United States remains a significant burden for many individuals.
According to the Federal Reserve, total U.S. consumer debt reached $2.56 trillion by the end of 2008. This figure consists of both credit card debt and non-credit card debt, with the exception of mortgages. Of the total debt, revolving debt, which includes credit cards, accounted for $956 billion.
For consumers striving to find ways to cover their increasing debts, there exists a potential solution that can provide these struggling consumers a light at the end of the debt tunnel.
Debt consolidation is a common method utilized to assist those challenged with mounting debts to find ways to better manage their finances and to pay down their debts quickly. There are two primary debt consolidation methods typically used: debt consolidation loans and debt consolidation programs.
Each debt solution offers unique benefits that should be weighed carefully by those considering debt consolidation.
The Truth about Debt Consolidation Loans
One option to assist consumers in consolidating debt from several creditors is a debt consolidation loan. Through a debt consolidation loan, multiple debts are combined into one new consolidation loan.
There are several benefits associated with a debt consolidation loan, including:
You can secure a debt consolidation loan multiple ways. When it comes to debt consolidation loans, consumers have three primary methods from which to choose to consolidate debt: refinancing their home with a cash-out option, securing a home equity loan or obtaining a personal consolidation loan.
A debt consolidation loan results in simplified monthly payments. Those who consolidate their debt can go from juggling multiple payments each month to managing just one payment. Additionally, consolidating debt into one loan can help you avoid inadvertently missing a payment or making a payment late, which will result in increasing your debt and harming your credit rating.
A debt consolidation loan can result in lower monthly payments. In addition to simplifying monthly payments, consolidation loans often result in lower monthly payments through lower interest rates and extended repayment periods. However, those looking to take advantage of these lower monthly payments should take steps to ensure that they do not end up paying more interest over the extended repayment period than they would have if they had not consolidated their debts in the first place.
The Truth about Debt Consolidation Programs
Often, individuals who are in significant debt discover that they are unable to get approval for a debt consolidation loan. Others with multiple debts would prefer not opening a new loan, even if it is to pay off their other debts. For these individuals, a debt consolidation program might be the best solution.
Debt consolidation programs also offer several benefits, including:
A debt consolidation program can simplify your monthly payments. Like a debt consolidation loan, a debt consolidation program takes charge of all of your monthly payments for you. All you have to do is pay the program directly, which then divides up your single payment among your creditors.
A debt consolidation program can help lower interest rates on existing debts. When you sign on to a debt consolidation program, the program coordinators work directly with your creditors, often negotiating lower interest rates on your debts, which then can result in lower monthly payments.
Finally, a debt consolidation program will provide you with a debt management plan. One of the services provided by a debt consolidation program is the creation of a debt management plan that will help you to become debt-free. Often, those in debt can become debt-free in four to six years through such a plan. In contrast, it often takes consumers up to 20 years to pay off credit card debt by making only minimum monthly payments.