If you have a large amount of debt you may have begun to feel overwhelmed and to wonder how can I settle my debts. While bankruptcy may be one option you've considered, there is another alternative: debt consolidation Before you decide if debt consolidation is right you, it's important to learn a little more about the process.
What is Debt Consolidation?
Debt consolidation involves taking out a new loan and using those borrowed loans to pay off your existing debt For example, you may use the loan to pay off credit cards, a car loan, and other outstanding bills.
While it may seem counter-intuitive to take on more debt in order to get your existing debt under control, this is actually a smart move because it will allow you to save money on payments and on interest. For example, take a look at the interest rates you're paying on all of those credit card balances. There's a good chance you are paying more than 20% but a debt consolidation loan would probably have a lower rate. Plus, your monthly payment for the loan is likely to be significantly less than the combination of all those individual bill payments.
A Few Debt Consolidation Issues
Before you jump into debt consolidation there are some issues you'll want to consider. For one, you need to be sure that the interest rate on the debt consolidation loan is going to be lower than the rates on your outstanding debt You do not wan to end up paying more in the long run for your debt.
Another issue is whether or not you will qualify for a debt consolidation loan that will be sufficient to cover your debt If you end up paying only a portion of your debt you could end up in a worse situation by taking on this extra bill even if you've managed to pay off some smaller debt.
Also, make sure that you do not use debt consolidate as a way to quickly pay off some credit cards just to run up balances again. That won't be useful in the long run either.
Getting Started with a Debt Consolidate Loan
You first step is to find a lender. Make sure you work with a trustworthy lender - you'll find a number of smaller mortgage companies that will charge enormous interest rates and that's something you want to avoid. Once you find a lender you trust, you can work together to complete the loan and to consolidate your outstanding bills.
Make sure you have a good idea of how much of a loan you will need before you go in to discuss the loan. You may even want to bring in the current totals on your outstanding debts. Remember that you cannot use a debt consolidation loan to combine tax money or student loans. Any other type of outstanding debt can be combined.
Before you finalize the paperwork, be sure you can afford the new monthly payment, too. Otherwise, you may find yourself back in a bad situation.
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