How to consolidate debts in the most effective way
The easiest way to pay off your debts is to repay them as per the agreement you have with your creditor! All other ways to pay off debts are not as easy as this one sounds.
Then again, we have those curvey ways to pull our debts together, if the straight one fails!
The best way to consolidate debt is to take out a traditional loan and repay all of your existing debts. So you only have this loan to clear out and things get pretty easy as you only have to make one single monthly payment, instead of tackling multiple debt bills.
The same thing happens with credit card debts. When you have multiple credit cards around you, maintaining several card payments each month is really difficult and confusing. So, isn’t it better to just pick out another card and shift all your existing card balances to this new card?
This method is what we call a balance transfer method for consolidating credit card debts. You probably must have already heard about it.
But we are going to talk about something else. It’s about clearing debts in the most intelligent way.
Consolidating your debt in the most effective and smartest way possible:
Debt consolidation and debt settlement are obviously the two most sought-after options for paying off debts.
With consolidation, you have a huge chance to keep your credit score intact by paying off the debt amount in full.
With the settlement, you get to negotiate with your creditors and decrease your overall debt amounts. But the settlement hits your credit score a bit, and your credit report might display the credit account as “settled”.
So what is the best option you have got?
For unsecured debts:
When you have too many consumer debts, the situation becomes a lot easier to handle. The creditors or collectors go lenient if the debt amounts are not that much bother.
Hence, the best way to consolidate debts, that include credit cards, personal loans, or payday loans, is perhaps to take help from a debt consolidation company.
I know very well what I am saying. Yes, a consolidation company will really help you come out clean of your debt scenario!
Here’s what the company will do. They will first go through all of your debts one by one and see their status like which debt is in default, which debt is carrying penalty fees, which account is having a bounced up interest rate, or which account is right now with the collections.
Once your debts are reviewed, the company will have a brief conversation with your creditors and see what extra fees and hiked up interest charges they can waive off. Also oftentimes, the consolidation company holds the capability to negotiate your debt amounts. You have guessed it right, it is definitely an act of settlement.
Once your debt amounts are decided by the company and creditors, you will be given a budget plan that will contain all of the financial ‘to-dos’ for you.
You will only be making a single payment each month to the consolidation company, against all your debts. Each month, when the company receives a payment from you, it will distribute the amount to all your creditors in different proportions as per their agreement.
This is what we call proper consolidation. So, handling the debts is no longer your headache!
As you can see, the company is doing both consolidation and settlement at the same time, which is impossible for you to do alone. My friend, right here, is the evolution in the debt payoff strategy. Pick it as your weapon before you lose yourself in the middle of debt and confusion.
For secured debts:
Technically, secured debts can never or rarely be settled. They have collateral attached to them, and if you can’t pay it off in full as per the terms of the account, then the creditor will take the asset back from you as compensation.
Such secured debts include mortgages, auto loans, secured credit cards, and so on.
If you are unable to pay off credit accounts like these, then you should have a discussion with your creditors and see what options you have. You can opt for a loan modification to adjust your loan terms and conditions.
Or you can even refinance your mortgage loan where you will have an option to pull back your built-in equity that might satisfy your other financial issues.
But in such cases of handling secured debts, things might really get difficult. So, take the help of a credit counseling company and check out all of your available options.