What is debt consolidation?
Debt consolidation is a process in which an individual heads to a debt management expert with the hopes of consolidating the individual debts into one bill. With this method, the debt manager will contact companies and ask them to lower the premium or hold the interest rates. This will help the payee to make solid payments regularly and on time.
Different forms of consolidation
Deb consolidation can come in the form of home equities (the need of collateral to consolidate debt), balance transfers (putting debt in a temporary low interest card), and some personal loans. All of them seem very ideal but there are risks to them:
- For home equity loans if the debt is too high to pay, you might end up defaulting and lose your collateral like the car or your property.
- Credit card balance transfers can lead to even worse credit card rating. Also, it might be hard to find a big enough limit to stuff all debts.
Some programs are designed per amount of debt. Depending on the situation and financial conditions, the payments can be quite higher or lower. That means you have to do adjustments as well in order to accommodate the rates while you continue paying the bills. It is also necessary not to skip on the bills.
Not for everybody
With debt consolidation, you can greatly reduce the rates since companies will restructure the payment plans based on what was talked about with the debt manager or company. It can also help in making sure that all payments are paid in one easy monthly bill. However, you have to be guided that not all people can benefit from it. If your debt is too much down in the dumps, then this program might even affect your current condition negatively. It pays to research well what works best for your needs since at the end of the day it is still about your debt and you cannot take any risks.