$5,700 is the average balance that American adults owe on their credit cards.
If you owe a lot more than this, don’t worry; you’re not alone. A lot of people owe much more than this on their credit cards.
Owing all this money causes financial burdens, as well as emotional problems. You can get help with your debt load, though, and you should.
If you’re interested in getting help, it might be helpful to start by learning how debt consolidation works.
Here is a guide that explains everything you need to know about debt consolidation if you’re considering this option as a way out.
Learn About the Debts You Can Include in a Debt Consolidation Plan
First, what is debt consolidation? If you don’t know a lot about this process, it might be best to start off learning the basics of debt consolidation 101.
Debt consolidation is a process that allows you to consolidate all your debts into one. It leaves you with one payment that covers all the bills you owe, and it will enable you to include many different types of bills.
Here are some of the debts you can include in a debt consolidation program:
- Credit card bills
- Personal loan bills
- Payday loans
- Medical bills
There might be others that you can also add to your plan. In fact, you can add just about any bill you might have.
Suppose you have fifteen different bills right now. Imagine the freedom you could experience if you only had one debt to pay instead of all fifteen.
Add up Your Debts and Review Your Interest Rates
To use debt consolidation, you should begin by locating all your debt statements. Next, write down each debt, including the name of the creditor, the amount, and the interest rate.
When you finish creating the list, add up your debts. Before doing this, you might not have a clue how much money you owe, so this can be a shocking experience to some. It’s a necessary step, though.
Once you have the total, you’ll know what to tell the company you work with.
It’s also helpful to find out how much interest you’re paying on your debts. You can look at each debt you have to find out the interest rate. Next, you can compare the debts to the interest rate you would have if you consolidated your debt.
If you can get a lower rate when consolidating, you’ll save money by going through with the process.
Work With a Debt Consolidation Company
The next step is to contact a debt consolidation company. You can choose from many companies, but you’ll want to research each one and compare their services.
There are some bad companies out there, but there are lots of good ones, too. You can judge a company based on their Better Business Bureau (BBB) ratings and by customer reviews. You want to make sure to only work with BBB-acredited debt consolidation companies that have favorable reviews.
When you contact a company, they can explain your options and the procedures for the options you can choose. You can ask questions about the details of their programs and the choices they have with debt-relief programs.
They can explain their fee system, too. It’s essential to compare your options and fees before selecting a program.
Get a Personal Loan to Pay off the Debts
One of the best options for consolidating debts is using a personal loan. Getting a personal loan equal to the total debt you have is an excellent choice for several reasons.
First, when you get a loan for the total debt you owe, you can pay off every debt you have. Afterward, you will have just one debt. Every debt on your credit report will include an update that you paid it off, and this could improve your credit score.
Secondly, the interest rate you pay for a personal loan will likely be significantly lower than the average rate you are currently paying for your debts. The result of this is money savings.
Finally, you will have a plan that tells you when you will be debt-free.
A personal loan is an installment loan that requires a stated number of payments. You might have payments for 36 months or longer, but at least you would know exactly when you will no longer owe any money.
Use an Alternative Program to Consolidate
Using a personal loan is one option for consolidating debts, but it is not the only option. An alternative method is working with a company that manages your debts.
Through this type of program, you do not get a loan, and you do not pay off all your debts right away. Instead, the company manages your debts by working with your creditors to create plans.
The plans may consist of reducing your interest rates and fees, and they will include a repayment plan.
You still pay just one payment per month, but the debt consolidation company chooses who to pay. Over time, you slowly pay off every debt through your monthly payments.
Calculate the Benefits of Debt Consolidation
Before using any program for debt relief, it is essential to calculate the benefits of the program. What are the benefits of consolidating your debt?
One benefit is saving money. If you pay lower interest rates on your debts, you will pay off your debts for less money.
A second benefit is timing. You can repay debts much faster through an effective debt consolidation program than by making minimum payments on your debts over time.
Finally, you might see a significant improvement in your credit score as you start working towards becoming debt-free. If you long to have excellent credit, choosing to use a program like this could be your first step towards achieving this goal.
How to Learn More About How Debt Consolidation Works
Debt consolidation is a popular program today, primarily because so many people have debt problems. If you really want a way out of your debt problems, take some time to learn more about how debt consolidation works.
As you learn more about it, you might decide to give it a try.
Debt consolidation works and is an effective option for anyone who owes a lot of money on debts.
You can find out more about debt consolidation and how it works by reading through the blogs on our website.