Tuesday, March 19, 2013

Understanding the Pros and Cons of Debt Consolidation


When it comes to the American Dream, at its core, you will find the hope of being debt free. No one goes to college, works all their life, only hoping to find him or herself completely broke once life is coming to an end. Everyone has hopes of leaving some type of financial legacy to their children and loved ones. This legacy might not be worth a million dollars, but leaving debt to children and loved ones is definitely out of the picture. 

So, how do debtors go about getting themselves out of debt? Especially those debtors who have found their selves in deep debt? Well, there is good news! Debtors can take part in debt consolidation programs to rid of their debt. These types of programs have helped thousands of debtors reach financial independence.
 

What is Debt Consolidation?

When debtors take part in a debt reduction system by combining all of their unsecured debts into a single debt, this is known as debt consolidation. People who obtain this type of consolidation are able to eliminate the need to send out numerous debt repayments every month. Instead, they are enabled to make a single payment on a monthly basis. The consolidation company that accepts the payment then disburses the payment to a person's creditors.
 

Understanding the pros and cons of debt consolidation will give a person a better insight as to how this type of consolidation works; this understanding can also help a debtor decide if this form of consolidation is something that he or she would be interested in obtaining.
 

Pros of Debt Consolidation

If a debtor has his or her debt consolidated, he or she will significantly benefit from having a lowered interest rate. In fact, most consolidation companies will bargain with creditors, getting them to enforce an interest rate that is quite a bit lower than what a debtor is accustomed to paying. Not only does this reduction in interest rates decrease the amount of money a debtor pays to a creditor each month, but it also lowers the overall amount that is to be paid off. Since payment amounts are decreased, debtors are usually better able to afford their monthly payments, which reflects positively on their credit reports. Furthermore, a reduced interest rate decreases the amount of time that it will take the creditor to pay off his or her debt.
 

Cons of Debt Consolidation

When a debtor first enters into a consolidation program, he or she will likely suffer from a small decrease in their credit score. The exact amount of decrease that he or she will endure is largely determined by the program that he or she enters into. While this may seem like a major con, it should not be forgotten that the reduction is only temporary. Once the consolidation program has been completed, a person will see his or her credit score greatly increase. 

Another con associated with getting debt consolidated is that a payment cannot be missed. If a payment is missed, a debtor may endure severe consequences. Every program has its own ramifications; however, for most, if a person misses a payment, he or she will probably receive an increase in the consolidation program's interest rate. At the worse, a debtor may even be kicked out of the program.
 

Summary

There are many institutions that offer different types of consolidation programs. These types of programs are especially advantageous to people who are trying to steer clear of filing bankruptcy. Generally, in order to qualify for a program, a debtor will need to have at least $10,000 worth of debt. If a person is interested in a consolidation program, he or she should speak with a consolidation specialist to see what his or her exact options will be.
 


Tips for Getting Back on Your Feet Financially After the Holidays


The holidays have come and gone, now you're left with a smaller bank account and possibly more credit card debt than you'd care to admit. Getting back on your feet financially can be tough after the holidays, but it can be done. The steps for doing so are easy and if you stick to your guns, you can skip the blues that usually come after the holidays when the credit card bills start to roll in Let's take a look at some of the tips that you can use to help you get out of your after-holiday rut. 

Don't Pretend the Bills Don't Exist 

Turning your cheek the other way on your accumulated holiday bills is not the answer. This will only make the problem worse as interest rates continue to tack on more debt. Not only that, you will have late fees to worry about for each month that you don't pay. Then after a while, the bill will go into collections and be reported to the credit bureaus, downing your credit rating. There is an ugly snowball effect when you choose to try and pretend your holiday bills don't exist. 

Keep Your Credit Cards at Home 

To keep from adding more debt to your holiday debt, you should stop using your credit cards until you have caught up. Using your credit card will only make paying off your debt longer. Instead, you should carry around cash or an ATM card, so that you won't have a need to use your credit cards. 

Combine Balances Using a Balance Transfer Card 

Simply making minimum monthly payments on your credit card bills is like digging a ditch with a teaspoon. To see faster progress, you can use a low interest balance transfer credit card. With this card, you can transfer all of your balances over to that one credit card, then you only have one debt to pay. 

Pay More than the Minimum Payment 

Another way of digging a ditch with a teaspoon is paying off your credit cards by putting only the minimum amount allowed each month. The more you can put on your credit cards the faster you will be able to come out of debt. This will also minimize the amount you'll end up paying on interest. 

Pay in Lump Sums 

To help pay off your debts faster, you can start paying off your credit card balances all at once. Debt consolidation may be an option as well. Start off with the smallest debt first or the one with the highest interest rate. You'll quickly find yourself out of debt with this method. It sure beats making monthly payments for the next three years. Just make sure to continue making minimum payments on the other credit cards until their turn comes around to be paid off in one lump sum. 

Return Gifts to the Store 

If you purchased items over the holidays that are just sitting in the closet, why not return them and get credit back to your credit card? If you used cash or a check, you can use the funds towards your current credit card debt. 

Keep Track of Your Progress 

To help keep you motivated to get rid of your holiday debt, you can write down all of the debts that you have paid down. Seeing this will show you how well or bad that you're doing. It is a great motivator and you can even celebrate any time you have paid off a credit card balance completely.