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Debt Consolidation
What's the Big Deal About Debt Consolidation?
Author: Ronnica RotheToday, the term debt consolidation is thrown around a lot, but not a lot of attention is given to defining it for the consumer. Of course, a thirty second television commercialwhere you most often hear the termis not an adequate platform for such an educational lesson.
Debt consolidation is when you take care of debt, especially credit card debt, by combining it with other debts. Debt consolidation can come in several different forms. So many different debt solutions are using this vague term, so it is necessary to know what the individual company is offering.
A common type of debt consolidation is a loan. In order to pay off credit card debt, you receive a chunk of money from one lender which you will pay back over time. Like any other loan, the interest rate is based on your personal credit. For most individuals with significant amounts of credit card debt, they do not have the credit they need to get a beneficial interest rate on a debt consolidation loan.
Another loan that could be taken out to pay off credit card debt is a home equity loan. If a homeowner wants to consolidate their debt, they can apply for this type of loan. Because the house is used as collateral, the homeowner benefits from a lower interest rate on the loan. However, they also risk losing their home if they do not pay the debt.
Balance transfer is another way to consolidate debt. Credit card companies often offer incentive rates to transfer other cards balances to that account, which helps. Beware that these incentive rates usually dont last very long, so this might not be the route to go if you cannot pay off the debt completely in a short amount of time.
Perhaps the most useful type of debt consolidation for credit card debt is a debt management plan. These allow you to pay one consolidated monthly bill like each of the above methods, but it can also save you on interest and fees on your accounts. This allows you to pay off your bills more quickly as you are wasting less of your money on interest.
A certified credit counselor can assist you sort through these options and assist you determine which is best for you. It is also worthy to check with the Better Business Bureau about the particular company youre considering working with to make sure they are in worthy standing. Debt consolidation can be a helpful tool to use on the road from financial freedom.
Article Source: http://www.articlesbase.com/debt-consolidation-articles/whats-the-big-deal-about-debt-consolidation-111242.html
About the Author:Ronnica Rothe is a graduate with honors from the University of Oklahoma and a current student at Southeastern Baptist Theological Seminary. She works with Personal Financial Network (pfni.net) to assist individuals get out of debt and reach their financial goals.
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Keywords:
debt credit consolidation loan card interest