Tuesday, October 6, 2015

Debt Consolidation Essentials and Finding out Your Best Ways to Consolidate Debt

Debt consolidation can be simply defined as a compilation of multiple unsecured debts into one. This may include consolidation of medical bills, credit cards, payday loans, personal loans etc., which all can be combined into a single loan for easy handling.

With consolidation, a debtor need not have to write the paychecks to five or ten creditors each month. Instead he/she can deal with a single bill. This will effectively help eliminate any mistakes in repayment, delays, and penalties.

Types of consolidation

As of late, there are three mechanisms for debt consolidation such as:
Debt management plans
Debt consolidation loans
Debt settlement.

However, you need to know that debt consolidation is not a quick fix to get rid of your entire debt burden, but it is a long-term approach to help you get out of debts. If administered properly, debt consolidation process can help you to:

Enjoy lower interest rates
Reduce the burden of monthly payments
Protect or enhance the credit score
Ultimately get you out of debt faster than a diversified process.

Debt consolidation methods in detail

As discussed above, there are three popular methods for debt consolidation, which we will discuss further.

Debt management plans

Majority of the financial experts commenting on debt consolidation agree to the fact that DMP (Debt Management Plan) is the most successful mode of debt consolidation. Most of these DMPs are ideally run by the non-profit organizations, both government and private. DMP starts with a credit counseling to draw out the volume and depth of your debts and how much you can afford to pay off the creditors every month.

These non-profit agencies can also help the debtors to effectively reduce the interest rates by negotiating with the creditors and also try to waive or reduce the late fees to balance the monthly payment budgets. The debtors need to make only a single payment to the DMP agency and they will further split it effectively among the creditors.

Debt consolidation loans

DCL (debt consolidation loan) is the next type of debt consolidation method, which allows the debtors to make a single payment to a new lender in place of multiple creditors. These loans have a fixed interest rate, which they usually keep lower than your average current debt burden. DCLs are of various types such as:

Home equity loans
Personal loans
Balance transfers on zero interest at credit cards
Student loan consolidation etc

Debt settlement

Debt settlement is a process through which you come into an agreement with your creditor to devise a full and final settlement of your debt. The providers may sometimes be taking this initiatives collect the debts and you can make use of such opportunities to get some discounts of waiver in interests to get rid of the debt burden.

All in all, debt consolidation is the best way to simplify your debt payment process, but the success of it largely depends on the method you choose. There is no one-size fitting all debt consolidation method, which one need to choose based on your specific requirements and financial situations.

Author bio: Linda Meyer is a leading financial analyst for one of the major credit unions in the United States. She used to write articles about the latest avenues as debt consolidation in many blogs and print media.


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