What You Need to Know About Credit Consolidation

accountant-1238598_640Sometimes what keeps our credit scores down isn’t just how much we owe or how close we are to our credit limits. Sometimes what keeps our scores down–even when we pay every bill on time every month–is how many bills there are to begin with. Owing a lot of money to a lot of different creditors, even when each creditor’s balance is relatively low, can really ding your score. And, of course, there is the fact that sitting down to pay a bunch of bills every month is nobody’s idea of a good time.

This is why so many people start exploring the idea of debt consolidation. The primary idea behind consolidating your debt is not just to reduce the number of payments you make but to reduce the amount you’ll be paying in interest rates, fees, etc.

There are a couple of ways to approach debt consolidation. The first is with a loan that you take out independently and use to pay off all of your other debts. Another method is to work with a credit counselor or debt consolidation company. Let’s take a closer look at each of these.

Debt Consolidation Loans

If you have a great credit score you should be approved for a personal loan pretty easily through your bank. If your credit is less than stellar, however, or if you would rather put the loan to work right now instead of having to wait a week or more for a decision and payment dispersal, you might want to look at one of the online payday loan alternatives.

These loans are often called installment loans and they are easier to get than traditional unsecured loans. Many companies specialize in working with consumers who possess scuffed up credit histories or whose incomes are low. Typically a borrower will be approved within a few minutes and have the money deposited into their account within a business day or two.

One of the reasons that these loans are easier to get is because the repayment term is shorter than traditional unsecured loans. Instead of 5 years, most installment loans limit their terms to three years maximum. It is also worth noting that the interest rate on these loans is higher than you would expect from a traditional lender. Still, they are better than payday loans. Trust us: never try to consolidate all of your debt with a payday loan.

Credit Counseling/Debt Consolidation Companies

If your credit is so shot that installment loan companies and alternative lenders won’t work with you, your best course of action is to work with a credit counselor (also sometimes called a debt consolidation agent). What these counselors and agents do is take on all of your debts themselves. They work with your original creditors to negotiate down how much you owe and your interest rates and combine each of those debts into one lump sum. You, then, make payments on that one lump sum but you make those checks payable to the consolidation or counseling company. Your caseworker then takes that single payment and distributes it across your debts.

There are quite a few benefits to working with a credit counselor or debt consolidation agent. The first is that you often will wind up paying less than you would have if you had simply used a personal loan to pay everything off. The second biggest benefit is that your caseworker will almost always be able to set you up with a monthly payment that you can afford. They’ll look at your income, expenses, etc and figure out a payment that won’t throw your budget out of whack. Working with these agents also helps you repair your credit without having to go through bankruptcy.

If you do choose to work with a debt consolidation agent or counselor, take some time to research each company. It is best to work with a non-profit organization because they don’t typically charge you processing fees or setup costs. Always do a background check on the company before signing any contracts. If you’re not sure where to start looking for help, talk to someone at your bank or call 2-1-1. They’ll be able to point you in the right direction.

Paying off your debts is important for many reasons. There are no rules, however, that say you have to pay each bill separately. Consolidation saves money and stress and, often, gives your budget some breathing room. All of these things make your life easier, so start exploring your options today!

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  1. Laurie says:

    If you have a lot of debt, it is important to get it under control and to find the best way to tackle it. There are different methods available, you just need to find the best one for you. Great information on various ways to help with consolidating debt. Thanks for sharing!

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