The current economic trends are forcing many to consider consolidating their debt. But, is there a safe way to consolidate debt, so that the credit score does not take a hit that will take years to heal. If a consumer can consolidate their debt, it will help them to get back on track with their bill payment history.
Obtaining loans to pay off debt may seem to be the clear cut answer to getting out of debt; however borrowing money to pay off money owed will only many times dig our hole deeper, and many soon realize that this probably was not a wise decision.
What debt consolidation means, is to bundle all unsecured debt together so that there is only one bill once a month. This balance is recalculated so that the person will have more money to live on from month to month, while debt is being paid off. This means that they will have to call each creditor to see if they will decrease the expected monthly payment and perhaps decrease the interest rate as well until the debt is paid off.
Most times consumers do not feel that companies will not listen to their pleas for help, and will not work with them, so they decide to go through a debt consolidation company to do the bidding for them. These companies are able to stay in business only by gleaning funds from their clients.
Many of these consolidation companies will help you achieve your financial freedom through low interest credit cards, but for a price. There is likely to be interest and consolidation fees while the person is in their consolidation program.
Because debt consolidation companies are able to spread your debt out over a long length of time and cut your monthly payments, that will in turn allow more free flowing cash, the client will end up paying more interest by the time the debts are paid off.
In order to get a consolidation loan to pay off unsecured debt the loan becomes a secured debt. Items such as your home or vehicle will now have a lien on it until the loan is paid. If something happens that the client cannot follow through with their loan payments this will put the vehicle and home at risk for loss.
There are steps that a consumer can do to consolidate their own debt thus saving fees, and eliminating risk of someone taking your home or car. One such solution is to obtain a lifetime balance transfer card, where the interest rate is low and the consumer can transfer all their unsecured debt onto the card and pay it off over time.
This low interest rate is generally a fixed rate for the lifetime of the card.
Another option is to bundle all debts together and apply for an unsecured loan to pay off all debt, with one monthly payment. However, this does not mean that the consumer can open up more charge accounts or obtain more credit cards. An unsecured loan to pay off debt will not put the house or car at risk for loss.
It is also a good idea to seek the advice of a credit counselor from a not for profit credit counseling service and to use a credit card comparison site if you open another one.. If the consumer still wants to consider an unsecured loan then they must do extensive research into the best company with the lowest possible interest rates. The length of the program to pay off debt needs to be considered, and to pay them off as soon as possible.