What exactly is Debt Consolidation? This method if debt management takes all your existing debts and puts them into one debt consolidation loan. It’s an attractive method for getting out of debt but isn’t without it’s own risks. There are a number of debt consolidation programs and you should consider all your options when choosing the best method for your needs.
Typically a debt consolidation loan takes all or part of your debts, usually unsecured credit and replaces them with a single secured loan to reduce interest and get smaller payments. A secured loan is one with collateral such as your house, car or other valuable items. Debt consolidation like this will help you manage having so many open lines of credit but depending your terms you may end up paying on the debt for a longer period of time. Every situation is unique and you have to decide if this is the right way to get out of debt for you.
The main benefit to this method is getting a fixed or lower interest rate lowering the overall amount you have to pay back. This can have a significant impact on the amount of money you own lenders and interest accrues very quickly with high interest loans and credit cards.
Getting one single loan will also avoid getting dinged by fees from having multiple lines of credit. Each one often charges fees on top of the interest you have to pay. When you couple that with paying only the minimums you’ll see your monthly balance go up instead of down which is quite discouraging. Not matter what method you choose you should always pay more than just the minimum!
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