Carrying debt can be very stressful. Depending on your financial situation, you may be under high pressure, medium pressure, or low pressure. If you are drowning in debt, you're obviously under a lot of pressure. If you are making your monthly payments each month, but your debts are growing, you are also under pressure, even if the pressure is less intense.
Consolidating your debts into one monthly payment may be a solution that can reduce the pressure you're under, save you money, and help you get out of debt faster. Everyone's financial situation is different, but there are some basic questions anyone considering consolidation should ask:
Sometimes, the answer to the question, "Do I need to consolidate my debt?" is "No. I want to consolidate my debt, but I don't need to." You have good income and strong credit, but have some debts you want to consolidate to pay off more effectively. If you are in this low-pressure situation, consolidating debt can improve an already stable financial situation.
You can save money when you consolidate your debt into a lower interest rate loan. When interest rates are low, it is a great time to take advantage of the opportunity to save money and reduce the pressure.
If you are in the low-pressure category, look into the following options:
Small financial changes can cause increased pressure. There are many possible reasons for pressure to ramp up, including:
When these kinds of events take place, it may not be possible to handle your problem on your own. While you may be able to make your monthly payments, using a professional debt consolidation service can help you save money and become debt-free sooner. You should look into the services of a Consumer Credit Counseling Service (CCCS).
As a first step, a CCCS works with you to review your overall financial picture, helping you establish a budget. They will analyze your income, spending habits, the debt you accrued, who you owe, and the assets you own. If your credit card interest rates are high, the CCCS will recommend a Debt Management Plan (DMP), where it can reduce your rates and help you get out of debt in about five years. You consolidate all of our credit card accounts into the DMP and make one monthly program payment.
Your DMP monthly payment may be smaller than your current monthly payments, but it usually is not much smaller. A DMP does not lower your credit score, but it harms your credit profile. The notation on your credit report that your accounts are enrolled in a DMP is viewed unfavorably by lenders. Essentially, you should not plan to open new credit accounts while in the DMP. Expect to pay high interest on any loan you need to take out, like a car loan.
Many Americans are under a lot of financial pressure. Housing prices have plummeted, unemployment has risen, and the cost of living keeps going up. If you're under high pressure, it may not be possible for you to pay all your bills on time. If you miss a payment with one creditor and it hikes your interest rate, you may be able to work your way out of your problem. If you miss payments with multiple creditors and all your rates get hiked, it is extremely difficult to dig yourself out of the hole. At that point, unless you can significantly increase the size of your monthly debt payments, the bulk of your payment will go to interest. You'll start getting collection calls, letters, and threats. The pressure builds and builds and it is very hard to know what to do.
If you are experiencing extreme financial stress, you need to look into programs that offer more aggressive solutions.