What Is Debt Consolidation?

Debt consolidation is a process where one can centralize debt into one place to lower the monthly payment and interest rate on a sum of debt. When a person has only one payment to make, it is less likely to miss any bills or to fail on making any payments on the debt. Missing payments on debt can cause additional penalties to your debt payment plan and a higher interest rate to pay, causing payment on debt to be even more difficult. Debt consolidation solves having to make multiple payments on debt with an organized method of handling all your debt at once at an affordable price.

To handle your debt before consolidation, first know where your debt problem is by calculating your total debt. Then search for a reputable debt consolidation agency. You can hire an attorney to help you, but if you do not then you should shop around before selecting any debt consolidation loan. Take into consideration how long a company has been in business, their reputation, and the cost of their fees. Check with the Better Business Bureau before investing in any business that claims to be a non-profit lender, and definitely avoid doing business with any loan sharks. Beware of debt consolidation programs that are actually home equity loans in disguise. Never put your home on the line if you do not want to lose your home. Avoid owning multiple credit cards as well. High interest cards cost more money and are famous for leading to financial problems. Aim to consolidate all your credit cards into one card with 20% interest or less.

You can borrow your way out of debt as well with some of the following methods. For example, if you have a 401(k) account or something similar saved towards retirement, borrow part of that money to pay some of your debt. However, if you do not pay the money back as you agreed to with the savings plan or if you lose your job and cannot pay your loan back, your loan will then be considered a disbursement. This means you will be responsible for any taxes and penalties that come with early withdrawal of those funds. Another option you have is to borrow money against any life insurance policies you may have, but plan to pay that money back. Borrowing money from family or friends will probably will save you interest as compared to taking money elsewhere. Beware of legal action taken against you or any damaged relationships if this is done improperly.

 

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