Debt Relief Through Debt Consolidation

There are so many people today who find themselves burdened with multiple creditors and overwhelming personal debt. So much of our income is spent just servicing debt that we're left with less and less for day-to-day expenses and even less for our long-term plans like college or retirement. The first step for people who have successfully turned things around is usually debt consolidation.

Consolidate bills
Manage creditors
Lower payments
Reduce debt

What is Debt Consolidation?

Debt consolidation is simply the process of transferring debt you have in several places to one place where you'll be charged less interest. That may involve for example using one low interest credit card to pay off several high interest cards or taking our a new low interest student loan to pay off two others.

What are the Benefits?

When you consolidate you lower the interest rate you are being charged on your total debt. That will slow down the growth of you debt each month. It also means you will have lower monthly minimums. If you're someone who is struggling just to make your monthly minimums debt consolidation can give you some breathing room. Ideally you can take the savings you have each month and not just make your minimums but begin to pay down principle. With fewer bills to pay managing your finances will be simpler and less stress full. Just the act of going from five credit card bills to one will help you to avoid frustrating late fees and just as importantly help you sleep better.

Where do I Begin?

You begin with a budget. Debt consolidation is a way to bring your minimums down a more manageable level. You won't be able to successfully consolidate debt until you know what that level is. A budget will tell based on your income you how much you can afford to pay toward debt each month and still have enough for you other expenses. If you haven't done a household budget it's time. Making a budget means making a realistic assessment of what you make and what you spend. Get some help if you need it. Find software, look online or borrow a book whatever works for you.

What are my Debt Consolidation Options?

If you're having difficulty managing your debt start by contacting your creditors and explain your situation. They have a stake in you keeping up with payments so they may be willing to work our out a debt management plan or help you to consolidate. If you're dealing with a credit card company for example tell them you're looking to consolidate and ask if they have any low interest balance transfer offers.

If your credit card company offers you a balance transfer deal over the phone or in the mail consider it. You may be able to take several cards where you are paying a rate of say 15%-25% APR and transfer the balances to a card with a lower APR. Generally offers are for a limited time say 0% APR for 6 months but offers vary so shop around for the best deal.

A debt consolidation loan may also be a good option especially if you're a homeowner. Talk to your bank or mortgage broker about refinancing your mortgage, getting a home equity loan or line of credit. Other debt consolidation options include taking out a secured loan from a bank or credit union or borrowing from your life insurance policy or 401K.

Sources:

Federal Trade Commission
http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre19.shtm

Managing Debt for Dummies