When you are feeling buried in bills, the idea to consolidate debt seems appealing. It could mean that instead of five or six payments you reduce the debt to one or two more reasonable ones, and thus you avoid the interest rate hikes and the late fees. Theoretically, everybody could consolidate debt on their own, without professional help, but such an endeavor requires serious research on your part. The other option is to ask for advice from a debt counselor and find out how things are done. Nevertheless, regardless how popular consolidation has become, it does not work for everybody.
You can enjoy two major benefits when you consolidate debt:
-reduce the number of creditors to whom you are beholden;
-have access to lower interest rates.
Things look so good, but you still need to determine whether debt consolidation is the right choice for you. That entirely depends on your individual circumstances, and should therefore be considered very carefully.
1. Analyze the credit score. If you have a negative report, you may not qualify for the interest rate that may take you out of trouble.
2. Don't launch into an elaborate consolidation plan before you've tried to renegotiate your contract. Sometimes lenders reduce loan rates in order to avoid the debtor's default on the loan.
Statistics don't look too encouraging when it comes to the success rate for people who've chosen to consolidate debt. It seems that 70% of the Americans who take a home equity loan to pay off credit cards, find themselves in the same amount of debt or worse, after two years from consolidation.
With a good plan to act on, you can also consolidate debt on your own. Possible ways to restructure debt include home equity loans, car refinancing, borrowing from retirement savings and so on. For those debtors who have high interest rate credit cards, a good credit score may help them qualify for a more favorable rate. If you take the right measures, chances are that you will eliminate cumbersome credit card debt and be back in control of your finances a lot sooner than expected.
If you decide to hire a debt consolidation service, choose an accredited counselor who has a good reputation and solid experience in this domain of activity. You need all the expertise you can as sometimes such a professional becomes your voice with the lender, negotiating better loan rates on your behalf.
