Debt Consolidation

If you need help getting out of debt, you are not alone. Debt levels are at record highs, as the calendar is about to turn to 2020. Debt is rising despite unemployment being down and wages rising. As debt inreases, so does the stress that comes with it. One common solution to paying off debt is a debt consolidation.

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What is Debt Consolidation?

Debt consolidation with a personal loan pays off several debts with the funds from a new loan. Debt consolidation generally is used on unsecured debts like credit cards, medical bills, and other personal loans, but can include secured debts. Roling a number of debts into one, new debt leaves one monthly bill to manage and pay. One fixed monthly payment takes less time to make, reduces your exposure to penatles and fees from late payments, and gives you a clear date when your debt will be paid off. Loans for debt consolidation commonly are paid off in 3 to 5 years. Debt consolidation, like any debt solution, only works when new debt is avoided.

Debt Management Plans and debt settlement programs are other forms of debt consolidation. They aim to lower your total cost for getting out of debt while making one monthly payment. Both require a disciplined commitment to not using credit cards while in the program. Like a debt consolidaton loan, these approaches aren't quick fixes. DMPs usually run around 4 to 5 years and debt settlement programs 2 to 5 years.

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Benefits of Debt Consolidation

Lower your
interest Rates

Lower your
monthly payments

Protect your
credit score

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Debt Faster

Debt Consolidation Alternatives

The term "debt consolidation" is used to describe a number of ways to pay off debt that have important differences. If you are looking to consolidate debt because you have a debt problem or for convenience, it is important to understand exactly how the term debt consolidation is used, as well as the pros and cons of each debt consolidation solution.

Debt Settlement

Debt settlement is an aggressive debt solution designed for people in a financial hardship who have trouble making their monthly payments or are headed that way. Clients hire debt settlement firms to negotiate with their creditors to obtain agreements where the creditors accept less than is owed yet agree the debt is paid off. Debt settlement harms your credit rating, but it offers the lowest monthly payment and total costs for paying off debt while avoiding bankruptcy. Debt Settlement consolidates your payments, so you make one payment instead of paying each creditor, but your debt is not consolidated. You still owe your creditors until each debt is settled.

Credit Counseling

Credit counseling services provide two main services. They review your income and spending in detail. and can offer budgeting tips. Credit counseling services also establish Debt Management Plans, if one is beneficial. A Debt Management Plan resctructure your debt at lower interest. Lower rates reduce your total costs and shorten the time to get out of debtA credit counseling service’s Debt Management Plan is another solution that consolidates your payment, but not your debt. Your debt remains owed to your creditors,

Cash-out Refinance or HELOC

Both of these mortgage solutions are true consolidation loans. The new loan pays off your original creditors. To qualify for either, you have to meet lender requirements for credit score, credit history, and stable, qualifying income. You also need to have enough equity in your house to add the debt you wan to consolidate to your current mortgage balance and still meet the mortgage program's loan-to-value guidlines. Many people wtih debt don't own a home and many homeowners can't meet one or more requirement, which eliminates them from HELOCs and cash-out refis as a debt consolidation option.

Bankruptcy

A Chapter 7 bankruptcy can wipe out your debts, if you qualify. A Chapter 13 bankruptcy restructures your debts. A Chapter 13 essentially is a payment consolidation option, as you will make one payment to the bankruptcy trustee, who distributes your payment to your various creditors. Until you complete the bankruptcy your debts remain in the hands of your individual creditors.