In our day to day life we come across with different emergencies for which fund is required. For funding such emergencies we opt for loans. These loans can be secured or unsecured loans. But what if number of loans increase day by day..? These loans can be related to medical, credit cards, personal loans etc. this increases the penalties for incorrect payments or late payments. The best way avoid 5-10 creditor’s cheque every month is to consolidate them in one. This means to combine many loans into one.
There is nothing that quick fix everything soon but certain long term financial strategies can be followed to get rid of too many debts. If done correctly, your debt consolidation can help to lower the interest rates, lower EMI’s, helps to protect the credit score and also to get out of the debt with faster pace.
There can several different ways to consolidate your loans. It also depends on how much a borrower owes. Balance transfer of higher amount of credit card loan can be transferred to a zero percent interest credit card. A personal loan can also prove to be a better option. For a secured loan such as a mortgage or a home loan can be either transferred to a new lender known as refinancing or can also opt for a new loan on the same property.
Debt Management Plans : debt management plan is a preferred method for debt consolidation. These DMP’s are mostly run by non-profit organizations. These non-profit organizations not only determine a comfortable amount that a borrower can pay every month but also help you to get lower rate of interest from the lenders or wave the late fee to make monthly installments little affordable for the borrowers. DMP receive a payment and distribute it among the creditors. Debt management plan not only improves the credit score but also in few years of the process, one can easily come out of the debt obligation.
Debt Consolidation Loans : debt consolidation loan allows the borrower to make a single payment to a single creditor instead of multiple payments to different creditors. The borrower has to make sure that this loan should be of a rate of interest which is lower than your current rate, reduce your monthly installments and make it easier to repay the debts. It is an easier way to combine multiple bills into one and track the finances. The only drawback is that the borrower has to face the longer repayment period but with its positive sides, it is worth investing.
Debt settlement : the two terms are often confused with each other. Debt settlement companies help and negotiate a lump sum amount lesser than what you owe to each one of your creditors. Though it sounds a great deal but comes with a drawback too. At times, creditors refuse to settle with the debt settlement companies and even if works this settlement brings your credit score in bad shape. Whereas, debt consolidation is all about borrowing a single loan that helps to pay off all the other unsecured loans. It brings a positive impact on the credit score until any payment is missed. While choosing a debt consolidating company please ensure to get their fees and interest charges in writing.