We are not here to bash on debt consolidation loans because despite our misgivings about it, consumers have effectively paid off their debts through this debt relief option. However, that can be attributed to a lot of things as well, like a complete turnaround on spending habits and the development of strict budgeting skills.
While that is true, do not completely debunk the idea of consolidating debts. It is helpful in terms of making debt payments manageable. And if the only reason why you will not consider debt consolidation is because of the loans involved, there are a couple of ways to combine debts without it.
First of all, you have the option to transfer balances. The goal of getting a loan is to have one payment scheme and a lower interest rate. The monthly payments will ideally be lower because you are adopting a longer term. These are possible with a balance transfer card. The idea is to shift your credit card debts into the card with the least interest rate.
There are two ways to do this. One is to select an existing card that you own and see if you can transfer your other balances there. Get in touch with your creditor and ask if this is an option possible in your account. Another option is to apply for a new card that has an ongoing promotion. 0% interest cards are great options here. You have at least 6 months of the discounted interest rate. The key is to take advantage of this and maximize debt payments to reduce your principal debt. Allocate a huge percentage of your income to pay for your debts within the 6 months of the promotion so you can accomplish this. This form of debt relief will require a balance transfer fee - usually, that is a certain percentage of the amount you will transfer. It also requires a good credit score to apply for a new balance transfer card.
The next debt consolidation option is debt management. This is ideal for those who can afford to pay the minimum of their credit card debts but would like to have a simple payment plan. The credit counselor who will help you with your debt management plan can assist in distributing your debts to the respective creditors. Initially, you will review your finances to see how much you can afford to pay every month. That total will be sent to the debt management company and they will distribute that to the creditors you owe money to. This will all be discussed and planned with you at the beginning of the program. They can also help you negotiate for a lower interest rate and the waiving of any penalty charges.
But if you cannot afford the minimum payments of your debts, another option to consolidate your debts is through debt settlement with a third-party company. It will be similar to debt management but the aim will be a more significant reduction on the monthly payments by negotiating for a settlement amount that is a percentage of the original balance. When the creditor accepts the settlement amount, all the debtor has to do is pay for it and the rest of the debts will be forgiven.
Both balance transfer cards and debt management will require a steady income for you to be able to afford the new payment scheme. Debt settlement requires the consumer to be in a serious financial crisis before a company will agree to represent you to a creditor.
Also, in a balance transfer card method, you can manage the consolidation on your own. Debt management usually requires a third-party to help you with your debts. Debt settlement can be done on your own but if you want to consolidate your debts to make life easier for you, hiring a professional company to help can achieve that.
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