Debt is a part of our life, but it can be dangerous as you can rack up bad debt quite quickly. You need to take steps to make sure you improve your financial standing.
Recent studies indicate that many individuals anticipate having more household debt in the coming month. It’s estimated that around one in three of these people wouldn’t be able to cover their basic monthly expenses if they happened to lose their job. As debt level rise, many people are thinking about debt consolidation. The problem is that many simply don’t understand what debt consolidation is.
Questions to Ask Yourself About Debt Consolidation:
- Do I know what debt consolidation is?
- Who should use debt consolidation services?
- Are there increased costs when I use debt consolidation?
- Do I need to look at my credit report?
- Do I need help more help understanding debt consolidation?
Do I Know What Debt Consolidation Is?
GE Money indicates that debts consolidation is the process where you gather liabilities like loans, credit card debts, and other debts and then combine all of these into one loan. This process is also called refinancing. You will only have one repayment that you need to manage and not all the other bills. The financial provider that you work with will make payments to your creditors on your behalf.
Who Should Use Debt Consolidation Services?
Some individuals may benefit from debt consolidation according to sites such as Credit Card Finder which is a site that compares credit cards while others that use debt consolidation may have added costs. Here are a few points to keep in mind:
- If you can’t pay monthly bills like credit cards or other debt, then debt consolidation will cut down on your payments and make it easier for you to manage your debt levels. This can be helpful if you’re at your credit card debt level or nearing it.
- You have home equity so the interest rate on your home will be lower than a personal loan or a credit card when you use debt consolidation
- You have a credit card with a low-interest You can consolidate low-interest rate credit cards onto one card and the transfer of your balance will save you interest and the effort it takes to pay off all the cards
Are There Increased Costs When I Use Debt Consolidation?
It’s important to do research before you think about debt consolidation as this might not be the best thing to do for your current situation. If you use debt consolidation in the wrong way, you could have even more problems than you had in the past. Some individuals may pay less interest and fees but for others, debt consolidation may only work for the short-term as you still have to pay off the debt consolidation bill.
There can be charges and fees when you use debt consolidation, and this can be the case even if your interest rate is lower with debt consolidation. Over the long-term, you can still pay more interest on the new loan. When you consolidate, you sometimes need to borrow more money as new debt may be loaded onto your existing debts when you use debt consolidation. If debt consolidation is simply done without knowing your current situation, then your financial problems can increase.
Do I Need to Look at My Credit Report?
You should look at your credit report before you decide to use debt consolidation. You need to understand your credit report because it will show you how credit providers see your individual financial profile. You will also be able to see any inaccurate information and dispute this, so it doesn’t show up on your credit application.
Do I Need Help More Help Understanding Debt Consolidation?
You should look for professional help when dealing with debt consolidation because it can be complex. A professional such as a financial planner or debt counselor can help you understand your current situation and help you find the best plan for your needs. You can get financial counseling from many agencies for free such as through community organizations, legal centers, and some government agencies. You need to understand your full financial situation, so you can make the right decisions in terms of your financial future.
Make sure you never agree to anything that seems suspicious and never give in to any pressure that a broker or other entity tries to push you towards. You want to get information only and then make the right decisions for your needs.
Summary of Debt Consolidation
In some cases, debt consolidation is the right thing for you but for others, it’s not recommended. The best thing is to figure out your current financial situation and then talk to an expert about your options before you consider debt consolidation.
