Many people struggle to keep up with payments on credit cards, personal loans, rent, and medical bills at the same time. With the ever increasing living expenses, high interest rates of credit cards and various loans, paying off debts can be crippling to your finances. The smart thing to do is to consolidate all your debts so that you are no longer making tons of different minimum payments on numerous loans, but instead only having to focus on one single payment that covers all your debts. This is debt consolidation – when you combine all of your payments into a single monthly payment to more easily pay off your existing unsecured debts.
Consolidating your debts makes it much easier to manage your life. However, don’t mistake debt consolidation for a quick fix. Debt consolidation is a long-term strategy which helps you free yourself from debt in an efficient and simple manner. There are a few ways to consolidate debt. Let us look at the three most popular ways.
Debt consolidation loan
Paying a single lower rate – This is the prime reason many people opt for a debt consolidation loan. A Cashco flex loan is an example of a debt consolidation loan because of its fixed interest rate which is likely lower than the multiple rates on your multiple debts. Your debts become much easier to manage and your monthly payments will be reduced, so your total interest costs will be lower. Interest payments on debt consolidation loans can be as low as half of the combined interests before consolidation of your debts.
Debt consolidation loans also have the added benefit of protecting and sometimes even improving your credit rating. Your credit rating, which is set by Equifax and TransUnion, will likely be checked before any debt consolidation loan is given out.
Debt management program
Another way of consolidating your debt is to opt for an orderly payment of debts program (OPD). These are usually run by non-profit organizations that will counsel you as well as negotiate with your creditors to help you systematically get out of debt faster and at a lower cost to you. With that aim, OPDs can also help you make you manage your interest payments. Just send one payment to the organization that runs your OPD and they will make the payments thereon to your multiple creditors. The monthly payments sent to your OPD organization will be set according to your finances and what you can afford to pay. An OPD does not involve a loan. Rather, a specialist guides you to making affordable single monthly payments that are distributed amongst your various interest charges.
Debt settlement is actually slightly different from debt consolidation. Debt settlement involves offering your creditors a one-time payment of a lump-sum amount and writing off of the amount you are unable to pay. The risk is that the creditor does not accept your terms and your credit rating is increased. However, if a creditor agrees to a settlement amount with an expiry date, you will be paying a lot less than what you owe and you can be out of your debt quickly. Settlement amount and expiry date will vary from person to person, depending on their situation.
Opting for debt consolidation
Debt consolidation provides you with a manageable and reliable way to remove yourself from debt if you’ve got multiple credit cards and personal loans, etc. With enough discipline, you will be free of all debt in a handful of years. The way in which you consolidate your debt will depend on your particular situation, the status of your credit rating, the amount of your debt, and your physical health.