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Debt Consolidation
Multiple loans such as credit cards, student loans, and home loans are a reality. While these loans may not always cause bad debts by themselves, factors such as health-care, job loss, and divorce, plays a major role in eating into the monthly household budget and escalating financial problems. In some cases, loan repayments are affected to the extent that they become bad debts. Some Debt FiguresUnfortunately, while finance itself is all about numbers, financial problems are more than that, they are the main cause for worries and distress in most households. A poll by Bankrate, Inc. shows that two out of five Americans are “preoccupied with worrisome debt.” Interestingly, 72% of the respondents felt that debt is part of modern living and no longer avoidable. The poll also reveals more than half of all Americans (61%) hold some form of debt, excluding mortgage. While 91% of the respondents hold the view that “Debt can be controlled through disciplined spending and saving,” 66% felt that “Debt often happens due to unfortunate circumstances beyond anyone’s control” [Source: http://www.bankrate.com ]. PlanningSound financial planning is fundamental to taking control of personal finances. When faced with the problem of bad debt, it becomes necessary to adopt stringent measures such as controlled budgeting, reining in essential expenses, and cutting down on all nonessential expenditures in order to prevent the situation from getting worse. Changing the way you look at recreation, for example, could help cut down ballooning costs. Simple measures such as eating out less often or taking fewer vacations a year can help you spread out your available funds better. This, however, may not be enough in some cases. Where there are multiple unsecured loans creating a bad debt, the debtor may need to look at professional help such as credit counseling organizations. Debt consolidation is one of the ways out of bad debt, depending on the specifics of the situation. What is Debt ConsolidationConsolidating several loans into a single loan not only reduces the sheer number of debts an individual has, it also cuts down on numerous statements and payment schedules. Debt consolidations work well for managing several loans that come with high interest rates. A distinct advantage of such a plan is that it often leaves you with money to spare. There are several advantages of Debt Consolidation: • Multiple payments with different amounts and due dates replaced by a single convenient payment • You can often choose a payment date that is convenient for you. • Generally lower interest rates • Monthly payments could be reduced if the consolidated loan term is longer than the individual loans • Help is available from credit counseling agencies such as CESI, who can offer professional advice and can free you from having to deal with collection agents It must be remembered, however, that debt consolidation does not do away with a loan; it simply moves the liabilities from several small or high ones to a single payment. Consolidating your DebtLike all dealings in financial matters, debt consolidation also needs to be approached with care. Once you decide that consolidating works best for you, conduct research on the best deals available. This can be done through seeking organizations that specifically offer debt consolidation services. It also helps to remember that these services are not free; there is a charge involved. However, as a rule, avoid services by organizations that try to persuade you into a program without thoroughly analyzing the state of your finances [Source: http://www.ftc.gov ]. |
