When it comes to money and finances it is easy to stray of off track and get behind on your monthly payments. From a job layoff, to a major hospitalization, financial ruin is just around the corner for an alarming number of Americans. The majority of us are one check away from trouble.
When we get to this point, most of us do not know where to turn for help. That puts us in a vulnerable position because there are companies out there that prey on consumers facing financial troubles. You have to do some due diligence and educate yourself on your options and more importantly, any business that is offering help for a fee.
In order to decide if consolidation might be right for you, you need to consider the following:
- Will you be able to pay your debts in full in the next 3 to 5 years?
- Is it possible to pay more than the required minimum payment each month?
If you answer no to both of these questions, then it will be worth your while to explore your options for lowering you debts. You do have options, from a 0% balance transfer to settlement offers to bankruptcy.
Settlement vs Consolidation
Debt settlement literally means that you pay back less than the total amount owed. You negotiate a settlement with your creditor for a percentage of the total debt. It may sound like an ideal solution at first, but a settlement can remain on your credit history for up to seven years.
With debt consolidation, you combine all of your outstanding balances into one monthly payment. While you still owe the full balance, you get to lower your overall interest rate. This helps you pay off the loan quicker than if you if you were making 3 different payments, mostly going to interest and not lowering your principal balance.
In essence, you lower your overall monthly payments but you are making more payment towards the principal. When you consider the advantages of consolidating, it is a no brainer versus any type of settlement program.
<h3>Advantages of consolidating now.</h3>
- Lower your monthly payments into one combined payment
- Lower interest rates and pay off your debts faster
- Eliminate expensive late payment penalties
- Avoid credit collection services and the harassment that comes with it
- Help minimize the damage to your credit reports by avoiding bankruptcy and settlements
<blockquote>Once you make a decision to pursue consolidation you have two options</blockquote>
In order to choose the best option, you need to have a clear understanding of what you want to achieve.
First, you can decide to join a debt consolidation program. These include a consolidation loan just the direct loan option below, but come with a company that helps guide you along the way. If you have doubts that you will be able to control your credit spending, I would advise using a program that has dedicated credit counselors available to help you plan everything out and get you on track.
The other option, is to take out a debt consolidation loan. This is a type of do it yourself consolidation, in that you eliminate the middle man and assume full responsibility for staying on top of your payments.
As we mentioned above, consolidating debt will minimize the damage to your credit reports. There is one caveat though, you need to be sure you can make the payments on time for the duration of the loan. If you fall behind on a consolidation loan, your options will be limited to help get caught up again.
<blockquote>Think of the loan as a last chance to get back on track.</blockquote>