Debt consolidation is the process of combining all your monthly debt payments into one manageable monthly payment. So many people just keep doing the same thing and end up putting themselves farther behind. There are at least four benefits well worth consideration when trying to decide the best way to get out of debt.
First and foremost, you need to be committed to what you are doing. For any debt plan to work, you first have to fully commit to avoid taking on any extra debt while you are trying to dig your way out of the current situation. Have you ever heard the expression "If you find yourself in a hole, stop digging"? If you're not committed, then any debt plan you enter into is doomed to failure which means the hole you are currently in will only get deeper. If you're ready to make that commitment and stick to it, then you're ready to be free of your bad debts, and put the money towards something else that will benefit you instead of your creditors. Read on.
In using this method, you pick a specific day of each month that you would like to make your payment. Part of the stress of carrying debt is remembering to pay everyone on time. Of course, when your payments are late, you incur late charges, over the limit charges, higher finance charges and your once low interest rate may skyrocket because you are now perceived as a higher risk. With a debt consolidation plan, you make only one debt payment per month, which is usually set up as an automatic draft from your bank account. Making it automatic is a great carefree way to make sure the funds get where they need to be on time.
This also brings welcome stress relief because you are condensing multiple debt payments into one manageable monthly payment. The great benefit here is now you don't have to remember multiple debt payments on different days throughout each month. As long as you make your one debt payment per month for the life of the plan, all is well. All you have to do is make sure there is money in the account when the monthly draft is made.
You may be able to lower your overall debt payment. Would you like to use the extra cash to be put back into your consolidation plan? Maybe you'd rather sock away the extra funds and begin a savings account or dedicate more money to your retirement plan. People who enter into debt consolidation plans usually have several high interest debts they are trying to overcome. Depending on the method of consolidation (professional help, consolidation loan, refinance, etc.) the repayment terms of your loan are set for a fixed period and the interest rate is considerably lower.
Perhaps the best benefit of debt consolidation is lowered interest. Here's another chance to use extra cash for something constructive. Whether you secure a debt consolidation loan
, complete a cash-out refinance
, or work with a not-for-profit agency that has established relationships with your creditors, paying less interest on your debt means more money stays in your pocket. Also, more of your hard earned income can go directly to the principal balance. This allows you to pay your debts quicker and with less interest charged over the life of the plan.About Author
Dave Galahad is a freelance writer for ABCMoneySource.com on topics of banking, finance, investing, credit, savings, and debt.
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