What Is Debt Consolidation?

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A debt consolidation allows one with various forms of debt to bring all of those forms of debt together to make paying them off much simpler. A debt consolidation can help eliminate a lot of the stress associated with paying off debt, making it a much more manageable process. 

Speaking to a financial advisor about what a debt consolidation can do for you is worth the effort. If you are feeling overwhelmed by the amount of debt you have, or find it difficult to organize your debt management, a debt consolidation could be the answer. 

How A Debt Consolidation Works

A financial advisor will go over your current debt with you and discuss the best possible solution for getting that debt under control. They will also be able to help you look at your current income situation to determine how to best manage that debt through a consolidation. 

Once the amount of your debt is calculated, a debt consolidation loan can be issued. This loan will go towards paying off your debts. This money will typically be sent directly to your debtors, so you don’t have to do anything in terms of transfers. 

After this process is complete, a monthly amount will be determined for you to pay down this debt consolidation loan. Thus, you will go from having to make several payments to different debtors to making one payment to the financial institution you work with. 

What Types Of Debt Consolidations Are There?

Debt consolidations can include receiving a loan to pay towards your debt, but the process can also include different strategies. A home equity loan, for example, is another type of debt consolidation wherein you use the equity in your home to help manage your finances. 

There are also credit card balance transfers, which allow you to eliminate multiple credit cards so you can pay off one balance or fewer balances. This also helps control a lot of the interest payments you have to make. 

You can also come up with a debt management strategy with a financial advisor, where you can take a close look at your current debt and brainstorm ways to get it under control. Some strategies utilized in a debt management plan include determining monthly payments for debts, organizing a budget, and knowing your expenses well enough to manage them. 

Debt management strategies don’t require you to take out a loan of any kind, and they are planned out in such a way to eliminate debt in a certain amount of time. 

A debt settlement can also be utilized if your debt is much more unmanageable than expected. A financial advisor will negotiate with your debtors to come up with a strategy to pay down these debts, which could include reducing some of the debt you currently owe. 

Installment Loans For Debt Consolidation 

An installment loan is one of the most utilized debt consolidation formats. As previously mentioned, a predetermined amount will be allotted towards the loan that was dispersed to pay debtors. 

You will make these payments in installments so that you are not overwhelmed by this arrangement. Most often, you will be asked to make an installment payment each month, based on the idea that after a certain term, you will have paid off the debt consolidation loan. 

The Benefits Of A Debt Consolidation 

Debt consolidations will allow you to eliminate much of the pesky interest you are paying on top of your debt. Interest can add up fast, causing you to have to pay much more than your original debt amount. Interest can also make you feel as though your debt is never going down. 

With debt consolidations, you will sometimes have to pay interest on your consolidation depending on the particular terms of your arrangement. However, this rate is usually much lower than what you pay on other types of loans or debts. Thus, it’s much more controllable. 

Who Can Be Eligible For A Debt Consolidation?

In order to get debt consolidation, your income will be considered, as well as the sources of debt you have and your credit history. This doesn’t mean that you have to be in a perfect financial situation as that defeats the point of debt consolidation. However, the financial institution you work with will want to know that you have the ability to make your installment payments. 

If you are interested in a debt consolidation loan, but aren’t approved for one, do not panic. A financial advisor can work with you to manage your money and your spending. They can give recommendations for where to potentially cut costs and expenses to navigate more money towards going after your debt more aggressively. 

Which Debts Can You Eliminate With Debt Consolidations?

The most common reason a person will get a debt consolidation is to eliminate or manage credit card debt. A person with multiple credit cards with high interest rates may feel as though they cannot get on top of payments. Debt consolidations make paying down this debt more attainable. 

Additionally, some people will use debt consolidation to pay down or eliminate other types of loans, such as student loans, car loans, or technology loans. 

Where To Get A Debt Consolidation

Most financial institutions, such as banks, can help you set up a debt consolidation plan. This is one of the best options if you have accounts with a traditional bank, as you often don’t have to pay for their services. 

You can also contact a credit counselor in your area to discuss your options for debt consolidation, as well as a financial advisor from a financial institution that is not a bank. 

When Debt Consolidations Aren’t Worth It

If your debt amount is either very small or very high, a debt consolidation may not be the best way to manage it. Additionally, if you have trouble controlling your spending and following a budget, a financial overhaul may be more beneficial for you long-term. 

You have to have a certain amount of discipline to follow debt consolidation, as you don’t want to eliminate debt just to go and build up more debt in the future. 

Final Thoughts 

Even the most seemingly cumbersome debt can be eradicated with some close inspection of your financial situation, and someone on your side to help formulate a plan that works for you. Debt consolidations are a very smart and efficient way to gain control of your debt. 

Debt is not a bad thing to have, but it can be hard to deal with. A debt consolidation can be tailored to you so that you can reduce the amount of stress that your financial situation may be causing you.

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