Is Debt Consolidation The Answer?
Debt consolidation does not actually save interest, that is a myth.Debt consolidation is a problem because it just treats the symptoms of debt, not the actual cause.
Financial advisors tend to avoid debt consolidation for that very reason, it makes you think you've helped your debt problem. The debt is still there, along with the habits that caused it. There is no real way to "borrow" out of debt. Long term debt relief will never easy and quick.
So, how does debt consolitation work?
The consolidation process can be done in one of two ways:
Get a debt consolidation loan
You can consolidate debt on your own. You get a consolidation loan from a bank. Look for a loan that offers a low interest rate. Then you use the money from the bank to pay off your debts.
There are two types of consolidation loans:
1. Unsecured loans: You are not aksed for collateral when getting an unsecured loan. They usually have a higher interest rate and offer less money.
2. Secured loans: Secured loans require collateral, such as a house or car. You lower your risk of defaulting by getting a secured loan. But if you do default you could lose the collateral you put up. These loans are attractive because of their relatively low interest rates.
Hire a debt consolidation company
Often, people get overwhelmed when trying to consolidate their own debt. If this is true for you, you can hire a professional company to take over. There are certain things to look for before choosing a company.
• Make sure they are accredited.
• Look for customer complaints.
• Read about their successes.
When you start, the company will review your finances. They will then give you advice for your consolidation.
They will also stop the harassing calls from creditors. Sometimes the consolidation company will help you put together a plan to keep you out of debt down the road.
Debt Consolidation Statistics
Lowering your payments and interest rate are what make debt consolidation an appealing alternative for most people. However in many cases the lower payment exists not because the rate is actually lower but because the term is extended. The reason is because the longer you stay in debt the more you end up paying in the end.
The only real way to live a debt-free life is change your spending and saving habits.
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ABOUT THE AUTHOR
Mark Winchester is not a certified financial counselor, but he has gone through financial difficulties in the past and he shares his experience and knowledge on matters of personal finance. http://www.pounds2day.co.uk