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Debt consolidation

The best way to consolidate bills

What is debt consolidation?

It is a process where you save money and cut down the number of your unpaid bills gradually.

It helps to turn 6 debts into one debt and makes you stress-free. The benefits of this debt relief option are that it involves less paperwork and low interest rates.

How does debt consolidation work?

A debt consolidate plan helps you to simplify your payments without having to borrow more money. When you enroll in the program, the consolidation company works out an arrangement with your creditiors where you consolidate debt into one monthly payment at a low interest rate.

You have to pay an agreed upon amount to the consolidation company every month and they will disburse the amount amongst your creditors till all your loans are paid off.

How does it help you save money?
Reduced interest rates
Lower monthly payments
Single monthly payments
No late fees and fines

Your total savings depend on the type of consolidation you choose. So, let’s have a look at the best debt consolidation options and how they help you to save dollars.

Pros and cons of debt consolidation

Pros –

It helps to combine debt into one payment
You can save money on interests and late fees
You are less likely to miss out deadlines
You have to manage a single bill every month
Debt collectors won’t bother you much
It gives you an emotional and financial relief

Cons –

You’ll be in debt when you miss out monthly payments
Your debt isn’t eliminated until the completion of the program
You have to change your behavior with money
What are the best debt consolidation options?

Program
Loans
Balance transfer credit cards
Program

It helps you consolidate your bills with the help of an affordable monthly repayment plan and eliminate debt within 3 to 5 years.

How much you can save with a debt consolidation program

Your current debt scenario:

You owe $5000 on credit card A and $6000 on credit card B.

The interest rate on credit card A – 24% | The interest rate on credit card B – 20%

After you consolidate debts, your revised interest rates are somewhat like this.

The interest rate on credit card A – 15% | The interest rate on credit card B – 10%

You’re saving 9% interest on credit card A and 10% interest on credit card B. You’re paying 19% less on the interest in total.

Previously, you paid $1200 on interest for credit card A and again $1200 on interest for credit card B.

After consolidation, you pay $750 for credit card A and $600 for credit card B.

Your total savings ($2400 – $1350 = $1050)

Loans

It helps you consolidate your multiple bills into an affordable single monthly payment plan at a low-interest. Check out the types of loan options:

1. Secured: A secured debt consolidation loan is the one where you pledge an asset like a home or a vehicle for it. A home equity loan is a burning example of a secured consolidation loan.

2. Unsecured: An unsecured debt consolidation loan is the one which doesn’t require any security or collateral for it. A good example of an unsecured loan is a personal loan.

How much you can save with consolidation loans

Your present debt scenario:

You owe $5000 on credit card A and $6000 on credit card B.

The interest rate on credit card A – 24% | The interest rate on credit card B – 20%

You take out a new consolidation loan of $11,000 at a 12% interest rate and pay off both the credit cards.

Previously, you were paying $1200 (interest) for credit card A and $1200 (interest) for credit card B.

You paid total $2400 on both the cards every month.

Now, you pay only $1320 for the new consolidation loan. Your total savings – $1080

In case of a home equity loan, you’ll save more because its average interest rate is 4%.

In a home equity loan, you’ll pay $440 every month. Your total savings – $1960

Balance transfer credit cards

This option helps you pay off your current debts with a new credit card at a low-interest rate. The best option is to pay off the balance before the promotional interest ends.

How much you can save with balance transfer credit cards

Your current debt scenario:

You owe $5000 on credit card A and $6000 on credit card B.

The interest rate on credit card A – 24% | The interest rate on credit card B – 20%

You pay $1200 each month for credit card A.

You pay another $1200 each month for credit card B.

In total, you pay $2400 for credit card A and credit card B.

Now, you take out a credit card with 0% interest rate. Transfer $11,000 into this card.

Pay off the entire amount ($11,000) within 18 months and save $2400 each month since the promotional interest rate is 0%.

Loans are split into 2 groups when it comes to what can or can’t be consolidated using this debt solution – secured and unsecured.

Secured debts like mortgage and auto loans involve a collateral. In case of mortgage, your house is the collateral. Likewise, in case of an auto loan, your vehicle is the collateral. If you can’t pay back the loans, lenders can come and take your vehicle or foreclose your home.

Unsecured debts are not backed by any collateral. They don’t have anything that can be seized when you don’t pay.

So any type of loans or debts that don’t have collateral can be consolidated. Usually, you can roll these types of bills into one payment:

1. Medical bills 2. Retail card bills 3. Credit card bills 4. Gas card bills 5. Utility bills
6. Unsecured debts

Can you consolidate all types of loans?
Which one is the right option for you?

Apparently, consolidation loans may seem to be the best way to consolidate debt.Don’t get swayed by the low monthly payments because there are many hidden costs you’re unaware of.

If the loan term is long, you’ll pay more eventually even if your monthly payments are low. In the case of a secured consolidation loan, you can lose your home or vehicle in the future.

A debt consolidation program is the best option because you pay a fixed amount every month. There are no hidden costs. You won’t lose your assets.

Positive customer reviews
Free counseling
Affordable fee structure
Less paperwork
Flexible and affordable repayment plans
Relief from debt collection harassment
Features of best debt consolidation programs
When should you consolidate your loans?

This debt relief option is a great tool to consolidate your loans into one monthly payment and get expenses under control. But does it work and when should you go for it?

Ideally, you should combine debt into one monthly payment under the following circumstances:

You are avoiding collection calls for outstanding bills
You have crossed your credit limit
You’re overwhelmed by debt and aren’t saving dollars
You’re paying only the minimum amount to creditors
You can’t manage multiple credit card bills at high interest rates
You’re ready to spend as per your means
How to choose best debt consolidation companies near me

Research

Google is too advanced nowadays. Whenever you search for something on Google, it automatically locates your current location and gives you the search results accordingly. So when you type ‘debt consolidation companies’ on Google, it shows you the top companies in your region.
Read reviews of those companies and find out if they have NFCC certified counselors, FCAA accreditation, good BBB rating, and excellent client reviews.

Calculate

Use a debt consolidation calculator and figure out how much you have to pay in total. If the company has an expensive fee structure, then it’s better to avoid it. Check if the company charges an advance fee because the FTC prohibits it strongly. Calculate the tenure of the consolidation program, interest rate, and your monthly payments.

Understand

Bad companies often skip the main details of the process to prospective clients. So, always ask the company to explain to you the consolidation process in detail. Ask various questions about the process from start to finish, and decide if the company has good intentions. Avoid companies that give you quick solutions without hearing your problems carefully.

How to qualify for consolidation loans
Maintain a good credit score

Lenders check your credit history and score before giving you a loan. A good credit score helps you to qualify for a low-interest loan.

Watch out for the best credit unions

Most credit unions are non-profit organizations. So they can give you personal loans at affordable interest rates.

Arrange all the documents

Lenders want to know that you can afford to pay off the new loan. They will check your bank statements, paystub, identity proof, and address proof.

Debt consolidation information and FAQ
Can you consolidate debt with Bad credit?

When you’re looking into debt consolidation for poor credit, your options are limited. It is tough to qualify for a consolidation loan at a low-interest rate with bad credit. Some lenders may agree to take a chance on you, but the interest rate on the consolidation loan will be very high. You won’t be able to save a lot of money. Some lenders may agree to lower the interest rate on the new loan, but they may lengthen the tenure. Eventually, you’ll pay more in the long run.

Honestly speaking, you’re less likely to qualify for a credit card with 0% APR with a poor credit score. That is why financial experts say that your options are limited when you’re looking into debt consolidation for bad credit.

Ultimately, everything comes down to the consolidation program because it gives you the option to combine loans into a single monthly payment plan at an affordable interest rate. Good companies don’t charge an exorbitant fee when they combine debt into one payment. They don’t check your credit score. So you’re saved.

How Does A Debt Consolidation Plan Affect Your Credit Report?​

A debt consolidation plan makes a positive impact on your credit report. Several accounts appear on your credit report as paid off. After you have completed the plan, lenders will update your credit report as “paid in full.” This helps to boost your credit score.

Timely payments help to build positive payment history, which affects 35% of your credit score. When you stay up to date on your payments after enrolling in a consolidation plan, your credit score starts rising gradually.

Depending on the step you take after consolidating debt, you can end up hurting your credit score. Late payments or missed payments can drop your score. So try to make timely payments every month.

Can I consolidate my payday loans?

You can consolidate your payday loans and get rid of the high-interest rates with a consolidation program. The new interest rate is lower than what you’re paying on your payday loans. Plus, there are no late fees and penalties. Once you enroll in the consolidation program, the debt counselors take care of your collection calls. So debt collectors can’t harass you anymore.

How can I consolidate my student loans?

When you’re unable to make payments on your student loans, you may want to consolidate them into a single monthly payment plan. You can consolidate private student loans with a consolidation loan. The interest rate will depend on your credit score. However, if you have federal student loans, then you can take advantage of income-based repayment plans or the Direct consolidation loan for paying off your student loans with a fixed interest rate.

Can I consolidate bills with limited income?

Income is a major concern when you’re applying for a consolidation loan. Lenders give a lot of importance to this factor. If you have limited income, then you have to convince lenders that you can afford the payments. A better choice might be a consolidation program where the debt counselors create a repayment plan on the basis of your limited income only. So the limited income won’t be a problem for you.

How can I qualify for a consolidation program?

In order to qualify for a consolidation program, you have to fulfill the following requirements:

You must have an active checking account
You should have an active cell phone number
You should have a valid email address
You should be at least 18 years old
You should a regular source of income
When is debt consolidation a bad idea?

It can be a bad idea when you have expensive habits. If you continue to swap credit cards like before, then a consolidation program won’t help. If you don’t save and make the required monthly payments, then also it’s a bad idea.

Should you use online debt consolidation services?

It is quite appealing when your financial life is out of your control. It helps you combine debt into one monthly payment online. Since the entire consolidation process is done online, so all you need is a laptop or a smartphone. That’s all. You can call the toll-free number of the consolidation company and clear your doubts about the sign-up process and the benefits.