It’s a cold, hard fact: Americans are in deep debt, almost $4 trillion in debt by the end of the year, to be exact.
This is according to analysed data from the Federal Reserve that also revealed that Americans spend 10% of their monthly income paying debts like credit cards, car loans and student loans. This is all caused by a lost of interest in financial literacy or simply ignoring the need to learn about finance and investment, a study suggested.
Now, if you’re one of those slowly drowning in debt, you can still turn things around by taking steps on consolidating your debt. Here are some tips to help you get started:
Debt Consolidation Defined
If you want to take a step in the right direction to being debt-free, debt consolidation is one of your best options. It is the process of combining everything you owe into one loan. This means that you won’t have to make multiple payments to different creditors each month. Instead, you will be making a single payment to one creditor, which simplifies your payment process, reduces your monthly obligation and lowers your overall interest rate.
The Process of Debt Consolidation
Debt consolidation works by combining all of your existing loans into a single loan. This means that all your old debt will be paid off and those balances will be put to a new loan, which you will pay from only one creditor.
The goal here is to pay off your debt faster by lowering your interest rate and reducing your monthly payments. This will help you make consistent, timely payments to avoid late fees and other consequences that could affect your financial standing.
The Types of Loans Eligible for Debt Consolidation
Debt consolidation is generally used for paying off large amounts of consumer debt that’s spread out over multiple loans. Unsecured debts that qualify for consolidation include credit card bills, student loans, personal loans, payday loans, medical bills and store cards.
Tips for Debt Consolidation
Once you’re ready to use debt consolidation as a way to get rid of debt, here are some tips that you can follow:
Get a clear picture of the situation
Take a list of all your debts including their amounts and interest rates. This will give you a better idea of how much you really need to pay off, which helps you in setting good repayment goals. Debt consolidation doesn’t get rid of your debt. It just gives you the opportunity to pay off your debt sooner by combining all your balances into a single loan to lower your interest rates and monthly payments.
Work on your credit score
One of the consequences of delinquency is a bad credit score, so before consolidating your debt, make sure to pay off some of your smaller credit card bills and cut those cards so you won’t be tempted to spend again. This will help you reduce utilization rates, which can help with your credit standing.
Do your homework
Before you start consolidating your debt, make sure that you’ve done your research first so you know what your options are. Read debt relief reviews, talk to people who’ve been through the same situation and ask help from financial experts.
Enroll in a debt management program
There are agencies that are willing to help you get out of debt without applying for a loan. Enrolling in a debt management program gives you the chance to get help from an agency that will work together with your creditor in lowering your interest rates so you can lower your monthly payments. They can even ask credit card companies to wave extra charges to reduce your repayments to an amount that you can easily afford.
Find a good lender
Once you’ve done all the steps to keeping your outstanding balance as low as possible, try to look for a lender where you can borrow money to repay them. Make sure that your lender is reputable, doesn’t charge high interest rates and offers flexible payment terms, so you don’t go through the same delinquency issues all over again. Ask for recommendations and review terms before committing to a loan to avoid further mishaps.
Are you ready to be debt-free? We know, you are. The first step is to acknowledge that there is a problem and then, you can start looking for ways to do something about it. Getting out of debt is very possible, after all. You just have to take the right steps to get there.