What is debt consolidation? In its simplest terms, it means taking everything you owe that’s not an ongoing bill, adding it all up until you know what the grand total is, then finding some way to get it all paid, hopefully at a lower interest rate so that you not only save some money, but get all of your outstanding debt paid off sooner.
In general, if you can get approved for a loan of some type, this is a smart way to go. Each month, instead of having to remember to pay a bunch of people, you only have one creditor to pay. Also, with lower interest rates, you get to keep more money in your pocket. However, if you decide to use some of that saved money in helping you pay off your debt, you can pay it off even quicker.
There are other benefits of debt consolidation also. You’ll finally know how much debt you’re really in. Your interest rate on a large loan should be much lower than what you’re paying on credit cards, possibly 50% lower, depending on what kind of loan you get. And, of course, paying off your debt quicker is always a good thing.
Where there are positives, there are also negatives. One major negative is if you accumulate more debt while paying off the first bit of debt, which many people do. Another is going with the wrong debt consolidation plan; there is a number of scam companies that will take your money and either run away with it, or will wait until your credit rating has been trashed, then make lower payments and charge you a second time for providing the services.
Other negatives include making sure you make all your payments on time, making sure whomever you trust to make payments for you makes those payments, and, of course, not accruing any new debt. Also, there are some things that aren’t allowed in some debt consolidation plans, such as car payments and, in some cases, mortgage payments.
