Know Your Debt Consolidation Options
Nobody likes being in debt or the additional
stress it adds to their life. Additionally, most individuals
have some form of debt that is weighing heavily on
them and they simply want to get rid of it. If you
are in this situation then you might consider debt
consolidation. When it comes to debt consolidation
there are basically two options you have. You can
either borrow money and pay off all your bills and
then just pay the one loan payment each month or else
you may choose to use a debt consolidation or credit
counseling services. The option that is best for you
is most likely the option you qualify for. The following
pros and cons of each debt consolidation option will
help you see which option is best for you as well
as inform you regarding each option.
Borrowing to Pay off Bills
The first option you have to pay off
all of your debts is to apply for a debt consolidation
loan or a home mortgage loan. However, this particular
option requires you have good credit and equity in
your home if you are applying for a mortgage loan.
As a result, many people do not qualify for this particular
option. Although, there are pros and cons for this
option for those individuals who do qualify.
The pros of borrowing to pay off your
bills include paying off all of your bills at once
and dramatically decreasing your monthly payments.
You will have to make a monthly payment on the debt
consolidation loan you received, but this will be
significantly lower than the total of all the other
monthly payments you were paying. As a result, a debt
consolidation loan will grant you some serious relief
in your monthly expenditures. Another benefit of paying
off all your debts at once is that if you were at
risk for collection of your debt you will not need
to worry any longer. Once your debt is paid off any
debt collection activities will be stopped in their
tracks and this will grant a significant amount of
relief as well. Another major benefit that is important
to everyone is that when you borrow to pay off your
loans your credit will not have any negative marks
and you will likely experience an increase in your
credit rating simply because you decreased your debt
ratio.
These benefits may have you excited;
however borrowing to pay off your debts also has its
drawbacks. For instance, if you receive a home mortgage
loan to pay off your debts and you cannot make the
monthly loan payment then you risk losing your home.
This is a significant drawback and if you do not believe
you will be able to make the monthly payment on the
mortgage loan you should avoid this option. Another
negative is that you are not eliminating your debt;
you are simply changing the way you pay for it. As
a result, the stress of the overall amount you owe
still exists and you can easily overextend yourself
again because you have a false sense of security that
you have your debts under control.
If you qualify for a home mortgage or
debt consolidation loan then you should work with
a loan counselor to help you meet your monthly obligation
and avoid any other negative impacts of your debt.
However, if you do not qualify for a loan you may
very well qualify for help from a debt consolidation
service or credit counseling service.
Debt Consolidation and Credit Counseling
Services
This option helps you in a variety of
ways, yet is significantly different than receiving
a debt consolidation loan. Many individuals have found
success by using these services while others do not
recommend them at all. You must review the following
benefits and drawbacks and compare them to your personal
financial and debt situation before you can make the
right choice for you.
The benefits of the debt consolidation
and credit counseling services include an immediate
decrease in your monthly payments. This provides significant
relief immediately for individuals suffering from
too much debt. Also, any debt collection actions in
progress will likely be reduced because the debt consolidation
agency informs your debtors that you are actively
trying to pay your bills. Frequently, these services
can also help eliminate late payment fees as well
as decrease interest rates. A required element in
using these services is learning money management
skills that will help you avoid getting in debt and
over your head. With your money management skills
you will understand how much money you have and not
try and live beyond your means. However, there are
cons that exist with this option of debt consolidation
as well.
When you use these debt consolidation
services you will not be allowed to use any credit
you have, so basically your credit is on hold. Also,
there are debt minimums you must meet before you qualify
for these types of services. If you have a very low
amount of debt then you will likely not qualify. Additionally,
debt consolidation services only provide services
for an individuals unsecured debt and not all individuals
unsecured debt will qualify. And finally, when you
use these services it might negatively impact your
credit score. However, it will not impact your credit
any worse than not using the services and continuing
to make late payments and getting behind.
As you can see there are two viable
options for debt consolidation and both are widely
different with their own sets of pros and cons. Once
you have evaluated the options for consolidating your
debt you need to compare them to your personal financial
situation in order to make the best decision for paying
off and managing your debt. If you are over your head
in debt then one of these options will certainly help
you, it is just up to you to figure out which one
provides you the most benefits and the least drawbacks.
People have many options when selecting
a debt consolidation service. I wrote this article
to help people understand these options. http://www
.freedebtconsolidationquote.net Nathan Dawson
writes for http://mar
riedfinances.com a great online source for finance
information.
