Debt Consolidation

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Author:
Dave Galahad

Debt consolidation is the process of combining all your monthly debt payments into one manageable monthly payment. There are at least four benefits well worth consideration when trying to decide the best way to get out of debt.

For any debt plan to work, you first have to fully commit to avoid taking on any extra debt while you are trying to dig your way out of the current situation. If you’re ready to make that commitment and stick to it, then you’re ready to be free of your bad debts. Read on…

In debt consolidation, you pick a specific day of each month that you would like to make your payment. Part of the stress of carrying debt is remembering to pay everyone on time. When that doesn’t happen, you incur late charges, over the limit charges, and your once low interest rate may skyrocket because you are now perceived as a higher risk. With a debt consolidation plan, you make only one debt payment per month, which is usually set up as an automatic draft from your bank account.

Debt consolidation also brings welcome stress relief because you condense multiple debt payments into one manageable monthly payment. Now you don’t have to remember multiple payments. As long as you make your one debt payment per month for the life of the plan, all is well.

Debt consolidation also lowers your overall debt payment. People who enter into debt consolidation plans usually have several high interest debts they are trying to overcome. Depending on the method of consolidation (professional help, consolidation loan, refinance, etc.) the repayment terms of your loan are set for a fixed period and the interest rate is considerably lower.

Perhaps the best benefit of debt consolidation is lowered interest. Whether you secure a debt consolidation loan, complete a cash-out refinance, or work with a not-for-profit agency that has established relationships with your creditors, paying less interest on your debt means more money stays in your pocket. Also, more of your hard earned income goes directly to the principal balance. This allows you to pay your debts quicker and with less interest charged over the life of the plan.

Dave Galahad is a freelance writer for ABCMoneySource.com on topics of banking, finance, investing, credit, savings, and debt. At ABCMoneySource.com our mission is to empower YOU with understanding on money matters and quickly find MoneySources to finance your dreams..... All from the comfort and privacy of your computer.

A Quick Note From The Publisher... If you like the article above, you may be interested in the following article which is also related to Debt Consolidation... How Do I Know If I'm Eligible For Debt Consolidation? Before contacting a debt consolidation agency you need to make sure that by consolidating your debt you’ll be improving your financial situation. Otherwise you’ll need to resort to other forms of credit and debt repair. Since debt consolidation is mainly based on debt negotiation, you have to make sure that the type of debt you have is suitable for this method of debt reduction. Pre-payable Debt and Negotiable Debt In order to be suitable for consolidation debt has to be susceptible of being prepaid and negotiated. This is an important issue because if your debt does not have either of these characteristics, you won’t be able to obtain any benefit from a debt consolidation program. Let’s analyze these factors separately first. When you prepay your debt, you are modifying the repayment schedule by paying part or the full amount of the money owed in advance. According to the contract, debt can assume three forms when it comes to prepaying: Prepaying can be authorized either explicitly or implicitly (if the contract says nothing about the issue), prepaying can be authorized but penalized with a prepaying penalty fee or prepaying can be forbidden. If prepaying your debt is forbidden the only form of debt consolidation available is negotiation and resorting to a debt consolidation loan is not feasible. If there are penalty fees, you need to ponder the fees in order to see if consolidation would be to your advantage or not (you may end up paying even more). By negotiating your debt, you agree with your creditors new terms for repaying your loans and other forms of debt. Not all debts are negotiable and non-negotiable debt cannot be consolidated unless you can repay the debt in full (by means of a debt consolidation loan). Generally speaking, secure debt is non...