With the recent economic slump, more people struggle with debt repayment and are in need of help. Is debt consolidation the answer? Can you really count on it to be debt free and enjoy financial stability?
Different Methods of Consolidation
Any kind of debt that is not secured by collateral can be consolidated. Student loans, personal loans, and credit card debts can be merged into a single debt to make repayment easier, more manageable.
There are three basic types of debt consolidation: acquiring a balance transfer credit card for credit card debt, applying for a debt consolidation program, and taking out a debt consolidation loan.
What’s the difference?
A balance transfer credit card usually offers a lower interest or zero interest rate so that all the balances transferred can be paid off with no interest. However, a balance transfer card can only be used for consolidating debts from other credit cards.
For managing loans, the borrower may choose to apply to submit payments to a consolidation company, who in turn will be the one to distribute payments to corresponding creditors. This arrangement can be done if you want to negotiate with your creditors for a restructuring of your loans terms.
Lastly, a debt consolidation loan is a new loan that is used to pay off all existing debts from different lenders. Thus, instead of dealing with multiple lenders, the borrower will only be subjected to pay the loan consolidation company. Take note that a debt consolidation loan is often a secured loan so it comes with much lower interest rate and a longer repayment period.
One advantage of consolidating debts is to enjoy peace of mind and relief. You no longer have to deal with lender or debt collectors incessant pleas for repayment. Then, the borrower will only have to remember one payment due date so confusion is avoided. Most importantly, you can reduce your costs by paying just one rate of interest and late fees can be waived.
Is It the Key to Debt Freedom?
Freedom from debts is very possible with the help of consolidation. However, your success would still be up to you. You need to be able to keep up with the repayment terms of your consolidation company to be completely free. To do that, adjusting your spending and lifestyle is still a must.