With so many things to pay for nowadays, it's all too effortless to rack up a bill that you cannot easily make payments on. Things can get jumbled up so much that you wouldn't know whom you owe money to nor how many payments you have yet to give. If you're looking for a solution that would make payments more convenient and even let you save on interest, you can choose to consolidate your debt.
Debt consolidation is an option that has gotten people out of financial troubles in the past, and it may just be your solution. It makes payments easier to keep track off, doing away with questions like how much goes to whom and other tricky details. Before anything else, you must first know a few concepts about it.
What is debt consolidation?
Debt consolidation is basically taking out a single loan which you can then use to clear off other debts. This leaves you with a single loan to make payments on, often at a lower or fixed interest rate. Collateral such as a house or a car may be used in order to secure the loan. It is also possible not to collateralize, however, it would be done at the expense of having increased interest rates.
What are its advantages?
Aside from paying lower interest rates, you also free yourself from the burden of nagging collectors who keep on calling in the night when you have consolidated your credit card debt and other bills. Simply put, they're prohibited from harassing you through this option. More than anything else, perhaps the greatest advantage is having to worry about but a single thing to pay.
What are its disadvantages?
On the flip side, there are also a few disadvantages to debt consolidation. For one, it isn't necessarily cheaper. If you lower your monthly payments, for instance, you run the risk of getting interest rates higher than what you were originally paying for. This means you can also run a higher debt than what you already have. Basically, the risks are due to poor credit and bad money habits, both of which really just depend on you.
Debt consolidation can either be your saving grace or your fatal blow, but you can make sure it's the former if you partner up with trusted financial advisers. For more information, go to forbes.com/sites/moneywisewomen/2011/03/07/financial-chore-3-consolidate-your-debt/.
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