Are you currently overwhelmed with debt problem? You can go to credit counseling agencies to get the relief you need. But there is one option that is getting a lot of popularity due to its ability to survive this debt ordeal – debt consolidation. But what is debt consolidation? Can it help you get back on track with your finances? Before you decide to get help with debt consolidation, here are 6 things you need to know about how debt consolidation works:
1. You will be dealing with a third-party payment system. Do you also wonder what is debt consolidation? Other than the fact that it helps a lot in dealing with debts, it is basically a type of debt management plan wherein a third-party creditor steps in to pay off the existing debts you have. They will then roll over into a single loan the total amount of debts you owe and start a new payment cycle. Please do note that this does not mean that you are debt-free. You are simply transferring your loan into a new and single account to make it easier to repay the loan.
2. Not all debt consolidators are the same. When it comes to sensitive matters involving your finances, you should assign your trust only to reputable companies. You need to be extra cautious about who you decide to work with. Choose a consolidator that is recognized by top credit organizations. These organizations serve to regulate the practices of the said consolidators to ensure that they follow ethical procedures.
3. Undergo credit counseling first. When you experience an overwhelming amount of debt, don’t jump into consolidation first. While there are advantages to debt consolidation, it also has a few drawbacks. One of the major disadvantages of debt consolidation is the possibility of paying a higher interest rate for the new loan at a longer term. You need to undergo counseling first to ensure that consolidation is your best possible option, taking your current and future financial status in mind.
4. Not everyone is suited for consolidation. This feature also relates to the pointer above – consolidation is not the right approach for everyone. If, in case, you have sufficient funds (after debt repayment and expenses) left, then maybe you would be better off handling the repayments on your own.
5. You should avoid incurring more debts during the repayment period. This should be an obvious step but a lot of consumers still commit this mistake. Take it upon yourself to avoid acquiring more debt while you are still in the process of paying off your existing debt. If you keep adding more debt while you are repaying, it will be an endless cycle for you. Check at Debt Helpline
6. Consolidation is not the same as bankruptcy. However, it will be viewed in your credit report as equally negative. It is, therefore, your responsibility to pay off your debt as soon as you can. That way, you can earn some positive points in your credit report. Your goal is to pay off your consolidated loan the soonest possible time – therefore, you should try to pay extra whenever you have excess funds.
Do you want to have more idea on consolidating loans and find more about what is debt consolidation? you may visit http://www.debthelpline.com.au/debt-solutions/debt-consolidation/.