Talk to a debt counselor toll free:800-300-9550
Our Clients Rate Us Excellent
Based on 3234 reviewsTrustPilot Reviews
Debt is a huge problem in the United States. The total consumer debt for the country is above 3 trillion dollars. On average, households with the lowest worth have a debt of $10,300. Slightly more than 38 percent of all households in the country have some form of credit card debt. The bottom line is that a lot of people are dealing with debt and they can't find a way to keep their head above the water. In many cases, these households are suffering from multiple sources of debts.
Unfortunately, there's no magic button that can eliminate debt forever. The only way to get out of debt without destroying your credit score is by paying it off. You will hear a lot of companies say they can reduce your debt by 50 to 80 percent using some secret technique, but this is never really the case.
However, you do have some options for making repayment slightly easier to manage.
How Can You Deal With Multiple Debts?
For most homeowners dealing with debt, there is more than one source. For example, they may have an unsecured debt that is $10,000 for two years with an interest rate of 15 percent. On top of that, they may also have a two-year loan for $5,000 with an interest rate of 12 percent. That makes their total debt $15,000, but the interest rate is rather high. They are looking at payments above $1,000 every month with much of that going towards interest.
It would be much easier if they were able to combine these two separate debts into a single debt with a single payment and single interest rate. It would be even better if they could have that interest rate lowered and be allowed to negotiate a new term. That is exactly what happens with a debt consolidation loan. Multiple debts are consolidated into a single debt with a newly negotiated term contract.
What Is A Debt Consolidation Loan?
Debt consolidation is the combination of multiple debts into a single debt that is more easily managed. It's a great solution for people who suffer from multiple sources of debt and have poor credit scores. To be more specific, debt consolidation is actually a personal loan. That is why it is referred to as a debt consolidation loan.
Unlike some other personal loans, you never actually see or use the money for personal reasons. Instead, the money is sent out to the various debt collectors or lenders. All of these people are paid what they are owed and now all of your debt rests with a single loan. The debt itself is almost always the exact same amount as it was before, but now with only one lender.
When applying for this type of loan you are able to negotiate terms as you would with any sort of loan. You may opt for 2 years, 6 years, or how every many different options are available with that particular lender. Now that all of the loans are in the same time frame it's much easier to manage. It also means that all of the loans now have the same, single interest rate.
In most cases, it is best to seek a longer term contract because of the much lower interest rate. It is true that you will end up paying back more money in the long run, but the monthly payments are much easier to manage. If you were having a hard time covering the payments before, then stretching them out a little longer, but at a lower price, may be your best option.
With a debt consolidation loan, it is possible to cut your monthly payments nearly in half. Of course, this doesn't mean that your debt itself is cut in half. You still owe the exact same amount. You just have less to worry about each month. This makes it more likely that you will be able to repay the debt in full and without damaging your credit history along the way.
As a matter of fact, the debt consolidation loan will actually improve your credit score. It is still considered a personal loan and all of the payments are still reported to the credit bureaus. So not only does the extended term allow for lower monthly payments, but it also helps build your credit score. If your credit score was damaged because of the prior debts, then this loan could help repair that damage.
These loans are considered unsecured because there is no equity placed against them. Because of that, their interest rate is slightly higher than some of the other debt consolidation options.
Is There An Alternative To A Personal Loan?
You aren't necessarily confined to using a personal loan. If you have some equity at your disposal, then there are better options. You could use your home as equity to receive a home equity loan or a homeowner equity line of credit, also known as HELOC. This would work slightly different than a personal debt consolidation loan, but with the same end goal. You would use the funds from that loan to pay off all existing debts and then focus on repaying that single loan.
Using your home as equity does have some noticeable benefits. You are more likely to get a lower interest rate using this method. Some home equity loans have interest rates as low as 4 percent. An interest-only HELOC can have even lower rates of interest. The important factor to remember here is that you would now have equity on the line. Repaying these loans becomes imperative if you want to maintain ownership of that equity.
You will want to carefully consider all of your options before making a commitment either way, whether it is to a personal loan, a home equity loan, a HELOC, or even a different form of debt consolidation loan. It's a good idea to speak with a professional on the matter. Visit a #1 rated debt consolidation site to receive a free consultation on the matter. Their sound advice will help you make the best decision possible.
What Are Some Steps You Can Take Before Receiving The Loan?
While not necessary, there are a few steps you can take yourself before seeking a debt consolidation loan. These steps could potentially help reduce your debt to some degree before consolidating. The end result is that you won't have as much to pay back on the new loan. You may not be able to pay back all of your existing debts, but if you could knock out one or two sources (for those who have several sources of debt), then it would make a noticeable difference on the new loan.
You have a few different options. The easiest option is to simply pay off your debt with the lowest balance. For example, if you have five different credit cards. Start by paying off the card with the lowest balance as long as it is within a manageable range. You could then move to the second card. Once you are on a card with a balance that is simply too large, you can make the move to a debt consolidation loan with a lower interest rate and lower monthly payments.
This technique, which is often referred to as the snowball technique, has a few benefits. First, you've eliminated some of your debt on your own, which is always a good thing. Second, consolidation loans keep the credit lines active after repayment. However, by paying them this way, you can choose to close the account entirely one at a time. You are then less likely to use the card and build a new debt.
Another step you can take is attempting to temporarily consolidate the debts yourself into a credit line with a no-interest period. Whether or not you can do this will likely depend on your credit score. If high enough, you could transfer the balances to a larger credit line that has a no-interest period. If that's a 6 month period without interest, then for the next six months all of your payments would go directly to that debt without worrying about interest. Then, as the six months end, you move the debt to a consolidation loan.
One final step to consider is settling or lowering your debts through negotiations and lump sum payments. It is possible that some creditors or lenders will allow you to settle your debt for a lump sum payment that is lower than the value of the debt. However, they may require some documentation proving that you are in financial trouble.
Let's say that you have a debt for $10,000. You could call that creditor and negotiate a deal where you pay $7,500 to settle the account. They may ask to see some documentation, which is when you show them proof of your other debts and information regarding payments. If they see that you obviously and cannot repay the debts, then they may accept the lump sum payment.
That is when you take out the debt consolidation loan and use those funds to make the lump sum payment. The end result is that you've shaved $2,500 off of your debt and also lowered the monthly payments and interest rate.
How To Choose A Debt Consolidation Company
It seems today that there are nearly as many debt consolidation companies as there are households that are in debt. For the most part, that's a good thing because it gives consumers a wide variety of options to choose from. However, not all of these companies are created equally. If they don't know what factors are important, then they could easily be swayed by a sub-par company.
Furthermore, some of these companies do not value honesty. Some companies make false claims in an attempt to encourage people in debt to use their services. The consumers eventually sign contracts with unrealistic hopes that a portion of their debt is going to magically disappear. This is never the case.
It's a good idea to use the tools available to you to weed through the many options and find a company that suits your need. The internet is great for this sort of thing. Visit review sites for a list of the top ten debt consolidation companies available. These companies are ranked according to a variety of factors that are important for consumers. There are no shady or dishonest companies included in the rankings. Only the best of the best are listed.
Some of the factors that the companies are ranked by include cost and fees, customer experience, and credibility of the company. The creators of the list also sorted through countless reviews of the companies provided by real customers to see exactly what people were saying about them. They then used this information to compile the list and rankings.
The number one ranked company on that list is National Debt Relief. We are a long-standing leader in the industry with many years of experience under our belt. We scored highly in all of the ranking categories and also offer a wider variety of services than most.
National Debt Relief offers debt settlement in addition to debt consolidation. It was found that the average reduction in payments after working with us was around 30 percent. Some saved even more on a regular basis. We are also one of the few companies that don't charge an additional monthly fee for their services, though they do charge a fee for debt settlement and reduction.
We require a minimum debt of $7,500, which is slightly below the average debt of most households. These debts could include personal debts as well as business debts. We also offer a personal advisor and online management of accounts.
Start Settling Debts Today
Whether you use National Debt Relief or one of the other companies listed, it's important that you start settling those debts today. A consolidation loan could be your best option if you find that the monthly payments are just too high as it is.