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Best Debt Consolidation

If you have many debt loans you may want to find a debt consolidator that can help you combine them into one loan with a debt consolidation loan. The first step in being debt free is debt management. Find out how to choose the best debt consolidation.

One of the most difficult financial problems you are likely to deal with is debt. Once you get to a certain point, it is hard to pay it off, since the interest charges add up. Soon, it can seem as though there is no way for you to get out of the debt hole. And it doesn't help that there are a number of payments that you have to make every month. A little bit paid on all of your debts doesn't seem to go very far overall.

This is when debt consolidation can help. With debt consolidation, you get all of your debts together, and then make one payment each month. This makes things more manageable. Additionally, your payment is larger and you only pay interest charges once, so more of your money actually goes to debt reduction on the principal.

Different types of debt consolidation

There are two main types of debt consolidation:

  1. Non-loan debt consolidation. In this type of debt consolidation, you actually have a third party tote up your debts and make payments on your behalf. The third-party negotiates lower interest rates with your creditors so that you can more effectively pay down the principal. You make one payment every month to the third party, and that third party makes all of your debt payments. This is not a loan. It just makes things more manageable for you when it comes to paying. These usually come with some sort of set-up fee. Additionally, the debt consolidation company often takes a percentage of your total debt as a fee, or part of your payment each month. In many cases, entering this type of debt consolidation program will lead to a closed credit account.
  2. Debt consolidation loan. This is one of the more popular methods of debt consolidation. You take out a larger loan, and use that to pay off your debts. Then you have only the one loan to make payments on. Usually, the one monthly payment is less than the total of your former payments. Additionally, the interest is usually lower. Until the recent housing market crisis, home equity was used quite often for debt consolidation. Now, however, it can be difficult to get a debt consolidation loan.

Both of these types of debt consolidation often come with upfront fees and monthly charges of some sort. Depending on the company, and how much you owe, you might pay between $10 and $100 a month in fees and/or interest charges. Make sure you understand the fees that you are paying before you sign anything.

Choosing debt consolidation services

There are many debt consolidation services listed online. However, you need to be careful of scammers. Before committing, make sure that you check with the Better Business Bureau and do a Google search to get an idea of whether or not the company is reputable. You can also check with a local, fee-based financial planner for debt consolidation services that can help you.  One of our suggestions is MoneyNowUSA.com.

Alternatives to debt consolidation

Debt consolidation is not the only way to get rid of your debt. Many people find that it works well for them, but there are other ways to pay down your debt. Here are some things that you can consider:

  • Debt settlement: This is when the credit issuer agrees to take a payment of less than you owe. Usually, you have already more than paid back the original amount due to interest, so it isn't really a true loss. You may also get modification for a lower interest rate to help you pay down your debt. However, in these cases, your credit account will be closed.
  • Do it yourself debt reduction: You can actually create your own debt reduction plan. First, see if your creditors will offer you a temporary reduction in interest rate without closing your account. Next, order your debts. Figure out how much you can afford extra each month to pay for debt reduction. Apply that amount to the first debt on your list, while paying only the minimum on everything else. When your first debt is paid off, move down the list. Anytime you get an unexpected amount of money in your budget, apply it to the debt you are currently working on.

Debt consolidation can be helpful for people who feel overwhelmed by the payments they are making. It can be a good tool to help those in debt manage their payments and concentrate their money to better effect. For others, though, there are alternatives that might work better. It all depends on your particular situation and your personal finance needs.

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