Millions of Americans are struggling with some form of debt and are looking for a way out. There are a wide variety of scams that take advantage of these vulnerable people and promise different avenues that are not legitimate. But one avenue that is legitimate is debt consolidation. A consolidation loan is a safe and legal way for a disciplined individual to take an important step in paying off their debts.
Benefit: simplicity
Many families suffering from debt are facing the problem from a number of different angles. They may have house payments, car payments, and debts from various credit cards. Having multiple sources of debt increases the chances that one of these sources has a massive interest rate that is contributing significantly to the family’s problem. Individuals may also run late payments because they cannot adequately manage all of the debt sources that they have. Consolidation simplifies this process considerably. An individual only has to worry about having one single payment and one single set of terms.
Benefit: better interest rate
Debt consolidation can often give an individual a better interest rate. This interest rate may be from an institution like a credit union which traditionally gives better interest rates than lenders such as payday loan companies. Many of the debts that individuals have are on the poor interest rate or amortization schedules. They may have rates that fluctuate depending on the whims of the wider world. Consolidation reduces all of those rates by allowing an individual to take a large sum of money and pay off all their debts with the one consolidation loan remaining. The consolidation loan may be at a much lower rate than any of their previous debt obligations. As a result, an individual may have significantly more money to pay down the principal on the loan.
Risks: more debt
The act of debt consolidation involves taking on an extra loan. It also involves individuals potentially holding thousands of dollars at one time. For some individuals, holding those sums of money can be dangerous. A debt consolidation loan could be used to purchase other things if an individual does not have the discipline to use that money to pay off and consolidate their current debts. Individuals have to work on their spending habits and their philosophy towards spending if they ever hope to make use of a debt consolidation loan.
Risks: does not deal with the principal
Debt consolidation is also problematic because it does not deal with the principal. As the experts at Ballast Associates note, consolidation primarily deals with the problem associated with interest rates. But interest rates may not be the most important problem an individual faces if they are swamped with thousands of dollars of debt in principal. People may still have to take on extra jobs or radically alter their spending habits in order to deal with their debt problems.
Conclusion
Debt consolidation only works for some individuals who are swamped by debt. These individuals should seek out a trained adviser like those at Ballast Associates. Advisers will help an individual understand their debt scenario and find the consolidation technique that will work best for them. Having a partner, as well as a consolidation plan, will both ensure that an individual is prepared for the debt relief process