Whether through TV commercials, ads in the paper, or spots on the radio, we’ve all been bombarded with the idea of “debt consolidation.” It’s often presented as a catch-all solution to our financial woes, a notion that compels some to leap into it without due course.
The truth is that debt consolidation is not the best option for everyone. This is why it’s very important to seek out a knowledgeable expert before making the decision. Reputable credit counsellors are well-known for helping people make the call, and they will only steer you in that direction if it’s the best debt solution for you.
So what if you’re a good candidate for debt consolidation? Here are a few more things you should know:
- You’ll be making one payment.
One immediate advantage of debt consolidation is that you won’t need to keep “spinning the plates” of multiple accounts. You’ll make one payment to the credit counselling agency – it’s their job to distribute the funds to your various creditors. This is not the same as a debt consolidation loan.
Rather than paying off all your bills with a loan, the credit counsellors have existing deals with creditors. Usually, this means lower fees and interest rates on your end. Another bonus? Your monthly payment will stay the same until the debt is paid off, so there’s less guesswork.
- Let the credit cards cool down.
When you agree to enter into debt management through consolidation, you’ll almost always have to agree to close down your credit card accounts. There’s little point to working towards being debt-free if you’re still swiping the charge cards, after all! In many cases, you will be able to retain one credit card for emergencies, but that’s what it’s for: emergencies.
- Creditors might look at in a negative light.
While debt consolidation isn’t nearly as a bad as a bankruptcy (your creditors still get their money), it can still have a negative impact on your credit report. This isn’t always a direct blemish, but can show up if you’re paying your creditors less than you would normally pay each month. Bear in mind that some lenders down the road will see that your bills were being paid by a third party (the credit counsellor) and consider it a strike against you. That’s entirely up to them.
- It’ll usually stop the creditors from bugging you.
Many people choose a debt management plan simply for the instant relief it affords. In most cases, the calls from creditors and bill collectors will stop once the plan commences. Combine this with the satisfaction of slowly and steadily getting rid of that haunting debt, and consolidation can become a lifesaving measure for some.
Remember, debt consolidation isn’t the best road for everyone to take. Because there are many variables involved – and even some risks – it’s critical that you seek out counselling before turning to debt consolidation is your way out. It’s possible that a credit counsellor can get your finances back on track without such a drastic measure, so it’s always worth getting a consultation first.
The alternative is a Debt Consolidation Loan
A Debt consolidation Loan is another common way to lower overall monthly payments and save money. When you’ve got multiple debts that need to be paid every month, the interest rates on all of those payments can add up to a tidy sum.
You could consolidate those debts onto a credit card, but there are service fees and high APR charges if you don’t pay off the debt in as little as 6 months sometimes.
What’s the solution? A debt consolidation loan with a fixed interest rate, set payment schedule, and no unexpected changes.
Who Benefits From a Debt Consolidation Loan?
If you have more than one debt that you pay every month, then a debt consolidation loan could be right for you. This financial product is often used to create one easy-to-pay debt out of multiple versions of these common debts.
- Credit cards.
- Vehicle loans.
- Student loans.
- Medical bills.
- Overdue payments.
- Collection accounts.
One payment to a debt consolidation loan can literally save several hundred dollars per month of interest because there aren’t multiple accounts to be serviced. That’s why everyone with multiple debt payments should consider this type of loan today.
Christopher has an MBA from a top Canadian University and a decade of Big 5 banking experience plus another decade of marketing knowledge. She has a passion for writing about financial topics and has founded and developed the brand of Underbanked®.