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In the days where I worked for Wells Fargo I had a long hard look at debt consolidation services. Debt consolidation in today’s age of credit cards is crucial for every borrower to learn about. When stuck with a mounting pile of debt and rising interest rates, a debt consolidation is the best option for many consumers. But is a debt consolidation service the answer?
Debt consolidation services work directly with creditors and can do any number of things. They can reduce the amount owed to all merchants by working out a payment schedule. They don’t only just work out a payment plan for your debts; they work out a plan to pay off the debts. Often debt consolidation services buy the loans themselves at lower rates and pass that onto the borrower. It’s wise to shop around at different debt managing services to find one willing to pass a better interest rate onto you.
Unsecured debt, like credit cards, is usually at a high rate of interest and the most commonly consolidated debt. Unfortunately, many people choose equity loans to secure a loan with a lower interest rate. While the interest rate seems very low, the debt is spread out over such a long period of time that the loan actually ends up costing more than non-consolidation. If you decide to use an equity loan to consolidate debt, be sure to have a pay off date. The longer a loan stands on an account, the more interest accrues. If left to accrue long enough, it can double the amount of the original loan. Debt consolidation is a great idea if you can pay the loan off before the interest piles up to ridiculous heights or if you’re in trouble financially.
Those who have financial trouble can benefit from debt consolidation services. Working directly with your debtors, they will create a time line to pay off your debt. The great thing about these services is that they reduce most debt to one payment. It makes it a lot simpler to pay off the bad debt.
You can work out your own payment arrangements which might be better, however. There is a term called rolling debt and it’s very effective in reducing debt without consolidation. Basically you make the minimum payments on all debt except the highest interest and balance loan. On the highest loan make the highest payment you can until it’s paid off. Once that debt is paid, pay the minimum plus what you were paying on the other card. Here is an example: if you have 6 loan payments, pay the minimum on all of them and then add $100 to the highest debt. Once that debt is paid off, take the entire payment you made on that card and put it towards the second highest, paying the minimum on that as well.
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