Know Your Debt Consolidation Options
Nobody likes being in debt or the additional stress it adds to
their life. Additionally, most individuals have some form of
debt that is weighing heavily on them and they simply want to
get rid of it. If you are in this situation then you might
consider debt consolidation. When it comes to debt consolidation
there are basically two options you have. You can either borrow
money and pay off all your bills and then just pay the one loan
payment each month or else you may choose to use a debt
consolidation or credit counseling services. The option that is
best for you is most likely the option you qualify for. The
following pros and cons of each debt consolidation option will
help you see which option is best for you as well as inform you
regarding each option.
Borrowing to Pay off Bills
The first option you have to pay off all of your debts is to
apply for a debt consolidation loan or a home mortgage loan.
However, this particular option requires you have good credit
and equity in your home if you are applying for a mortgage loan.
As a result, many people do not qualify for this particular
option. Although, there are pros and cons for this option for
those individuals who do qualify.
The pros of borrowing to pay off your bills include paying off
all of your bills at once and dramatically decreasing your
monthly payments. You will have to make a monthly payment on the
debt consolidation loan you received, but this will be
significantly lower than the total of all the other monthly
payments you were paying. As a result, a debt consolidation loan
will grant you some serious relief in your monthly expenditures.
Another benefit of paying off all your debts at once is that if
you were at risk for collection of your debt you will not need
to worry any longer. Once your debt is paid off any debt
collection activities will be stopped in their tracks and this
will grant a significant amount of relief as well. Another major
benefit that is important to everyone is that when you borrow to
pay off your loans your credit will not have any negative marks
and you will likely experience an increase in your credit rating
simply because you decreased your debt ratio.
These benefits may have you excited; however borrowing to pay
off your debts also has its drawbacks. For instance, if you
receive a home mortgage loan to pay off your debts and you
cannot make the monthly loan payment then you risk losing your
home. This is a significant drawback and if you do not believe
you will be able to make the monthly payment on the mortgage
loan you should avoid this option. Another negative is that you
are not eliminating your debt; you are simply changing the way
you pay for it. As a result, the stress of the overall amount
you owe still exists and you can easily overextend yourself
again because you have a false sense of security that you have
your debts under control.
If you qualify for a home mortgage or debt consolidation loan
then you should work with a loan counselor to help you meet your
monthly obligation and avoid any other negative impacts of your
debt. However, if you do not qualify for a loan you may very
well qualify for help from a debt consolidation service or
credit counseling service.
Debt Consolidation and Credit Counseling Services
This option helps you in a variety of ways, yet is significantly
different than receiving a debt consolidation loan. Many
individuals have found success by using these services while
others do not recommend them at all. You must review the
following benefits and drawbacks and compare them to your
personal financial and debt situation before you can make the
right choice for you.
The benefits of the debt consolidation and credit counseling
services include an immediate decrease in your monthly payments.
This provides significant relief immediately for individuals
suffering from too much debt. Also, any debt collection actions
in progress will likely be reduced because the debt
consolidation agency informs your debtors that you are actively
trying to pay your bills. Frequently, these services can also
help eliminate late payment fees as well as decrease interest
rates. A required element in using these services is learning
money management skills that will help you avoid getting in debt
and over your head. With your money management skills you will
understand how much money you have and not try and live beyond
your means. However, there are cons that exist with this option
of debt consolidation as well.
When you use these debt consolidation services you will not be
allowed to use any credit you have, so basically your credit is
on hold. Also, there are debt minimums you must meet before you
qualify for these types of services. If you have a very low
amount of debt then you will likely not qualify. Additionally,
debt consolidation services only provide services for an
individual's unsecured debt and not all individual's unsecured
debt will qualify. And finally, when you use these services it
might negatively impact your credit score. However, it will not
impact your credit any worse than not using the services and
continuing to make late payments and getting behind.
As you can see there are two viable options for debt
consolidation and both are widely different with their own sets
of pros and cons. Once you have evaluated the options for
consolidating your debt you need to compare them to your
personal financial situation in order to make the best decision
for paying off and managing your debt. If you are over your head
in debt then one of these options will certainly help you, it is
just up to you to figure out which one provides you the most
benefits and the least drawbacks.