So you have some debt, and the interest is starting to pile up faster than you can pay it down. Luckily, you’ve been making your payments so far (or most of them) and your credit is still okay. If this sounds like you, it may be time to consider debt consolidation. You’ve probably heard of this before, but may not know exactly how it works, and if its something you should consider, so heres a high-level explanation of how these programs work. As always, financial questions are very personal and you should always speak to a professional before making any major decisions. TheSavingsHound does not offer any debt or financial services, we’re just giving you information.
What Is Debt Consolidation: Quite simply, its exactly what it sounds like. Certain companies will effectively ‘buy’ your debt or give you a loan which you can use to pay off your debt (generally credit card debt). Instead of having to pay multiple lenders or credit card companies every month, you can ‘consolidate’ your payments into one single payment, usually at a lower negotiated rate than you’re likely paying on a credit card.
Why Would A Company Offer This? Theres a lot of answers to that question, but generally these programs are offered to people who still have good credit, but may just have gotten behind on their credit card payments due to an unforeseen event. Since credit cards generally have extremely high interest rates, it can be difficult to climb out of their payments, but these companies can evaluate your situation to see if you’d be a good candidate who is likely to pay back the loan. So they’re still earning money on the loan they may offer you, but you obviously would pay less overall with a lower interest rate.
Should You Consider a Debt Consolidation Loan? Well, this is a very personal question and it depends on your financial situation. Many debt consolidation companies require you to have at least $10,000 in credit card debt to qualify, and they of course require a credit check. If you’re in a situation where you’re beginning to struggle making payments on multiple credit cards, but still have good credit, it could be a good idea to seek out a debt consolidation loan before things get out of hand.
There are a lot of debt consolidation companies out there, so be sure to do your research and find one that has a good reputation, and has a program that meets your individual needs. As always, its a good idea to speak to a financial professional before making any major decisions.