Watch Video: Find out the 5 ways to repay and consolidate debt
Truth or Myth - Debt consolidation is good for your financial life
Debt consolidation is good for those people who are unable to satisfy their financial liabilities and want to replace multiple unsecured bills with a single monthly payment plan. This debt relief option helps you pay less on interest rates and save money.
You can consolidate debt in the following 2 ways:
- Debt consolidation program - This is where a company helps you organize an easy and budget-friendly single monthly payment plan.
- Debt consolidation loan - This is where you take out a loan to pay back your multiple creditors instantly. You make a single and low monthly payment for loan consolidation.
Apart from the above mentioned ways, you can also transfer balance from one credit card to another one at an introductory low rate. This helps you consolidate debts into one single card and save money as well. Check out the do's and don't of credit card balance transfer.
If you've lots of questions regarding consolidation, then check out our FAQ section.
Real and smart debt plans to manage your finances
Apart from consolidation, there are 4 other debt plans that can help you get financial freedom. Check out the plans to know which one will be the best for you.
- Debt settlement: This option helps you take control of your financial life by paying a reduced amount up front. You can use a debt settlement calculator to find out how much to pay and save.
- Debt management: This option helps you save on the interest rates after attending a debt counseling session. You get a smart budget plan that helps you reduce expenses and make payments to creditors.
- Interest arbitration: In this debt plan, you obtain a secured loan and repay your loans with higher interest rates. You'll have to make only one payment every month on the new loan.
- Bankruptcy: This option is the best when you want to pay back your creditors under court supervision.
There are 2 types of bankruptcy you can file depending upon your income and financial liabilities.
- Chapter 7 bankruptcy - This bankruptcy plan helps you pay back your creditors within 3-4 months. It is more properly known as straight bankruptcy.
- Chapter 13 bankruptcy - This bankruptcy plan helps you repay your bills 3-5 years. You need to have a regular source of income for passing the means test.
You can go through a comparison chart on various debt relief options to understand the best available option. If you want to know how much you can save through various options, then check out the calculators section.
Debt consolidation - How much you can save
There's no fixed amount that you can save through consolidation. You can have a look at the following example to know how much you may be able to save after getting the debt service.
Your total balance on credit card A (20%) - $25,000
Your total balance on credit card B (10%) - $15,000
Your total balance on credit card C (15%) - $20,000
Your current average interest rate - (20% + 10% + 15%)/3 = 15%
Debt counselors negotiate with creditors and interest rates are lowered to:
Credit card A - 15%
Credit card B - 8%
Credit card C - 10%
So, your revised average interest rate is (15% + 8% + 10%)/3 = 11%
This means you're saving 4% on interest rate.
If your total credit card bill amount is $50,000, then your total savings will be - (4% * 50000) = $2000
How right advice on debt consolidation helps you save money
The debt consultants of America are of the opinion that you need to act very carefully in order to regain complete control on your financial life. The debt consolidation success rate is undoubtedly very high. There are instances wherein people have been able to save as much as 60% by following the 8 tips.
- Formulating a budget based upon your income and expenses
- Spending money as per your budget
- Making single monthly payments
- Abstaining from useless expenses
- Refusing new credit card offers
- Co-operating with the counselors
- Making extra payments whenever you can
- Getting help from a good company
You can have a look at our list of reliable companies and choose the one which gives you debt assistance at an affordable rate.