Using Debt Consolidation to Get Rid of Debt

June 26, 2012 by  Filed under: Debt 

Many people struggle with bad debt due to different reasons. For some, bad debt is a result of uncontrolled spending and poor management of their finances. Others failed to keep up with debt repayment because they have been laid off from work unexpectedly or unexpected medical bills. Different problems can cause debt build up and sometimes, debt consolidation can be the most appropriate solution.

Before consolidating debts, it’s important to understand the steps involved in the process. Debt can be consolidated in different ways and you should carefully consider which option fits your financial situation. Let’s talk about the different methods of debt consolidation.

Debt Consolidation Loan

A debt consolidation loan can be used to pay down all debts at once. This type of loan is secured with the borrower’s property so you should make yourself aware of the risks. The borrower must provide collateral to guarantee repayment of the loan. You can use your home or other valuable property as collateral, depending on the amount borrowed and the value of the collateral.

Consolidating debts through a loan is a smart strategy to immediately stop debt from accumulating due to the monthly interest rate and late penalty charges. It is also a great way to reduce your monthly loan payments since you only deal with one lender and pay a single interest rate.

As soon as your debt consolidation loan gets approved and all your creditors have been paid, keep in mind that you still have an obligation to your debt consolidation lender. Always remember that failing to keep up with your monthly loan payments could lead to trouble since you could lose your property or collateral to your lender.

Debt Management Program

Aside from loans, debt consolidation companies also offer another form of debt consolidation service. This type of service is known as DMP or Debt Management Program. Upon enrolment to the DMP, the borrower will submit a monthly payment to the debt consolidation company. In turn, the company will be the one to distribute payments to corresponding creditors.

For borrowers who are not qualified to get a loan, signing up for a debt management program can be a smart move especially when the debt has become overwhelming. Nevertheless, consumers must make sure that they are dealing with a legitimate consolidation company because some agencies are known to make money off of these programs.

Balance Transfer Credit Card

For consumers who have a problem with credit card debt, there is another way to get out of debt aside from taking out a debt consolidation loan. If you own multiple credit cards with high interest rate, transferring your balance to a new card with a lower interest rate can make repayment less of a burden. In fact, you can find balance transfer credit cards that offer 0% introductory APR which means you can pay down your balance with no additional interest charges.

Should you decide to consolidate your credit card debt with a balance transfer card, remember that the zero interest rate is just a temporary offer. Get to know how much the regular rate is when the introductory period ends. More importantly, complete your payments while the zero interest rate still applies.

Shelly Evans is a freelance writer and loan consultant. The website http://www.badcreditresources.com offers resources that specialize in providing  personal loans for bad credit and credit cards for bad credit.

Article Source:
http://EzineArticles.com/?expert=Shelly_Evans

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