If you're struggling with debt, take a deep breath and relax. You can make your life easier and less stressful by consolidating all those debts.
The benefits of debt consolidation
There are two major benefits to consolidating debts. First, you should have a lower monthly payment than the total of the monthly payments you are currently making. Second, you will be required to make just one payment a month in place of the several or many you are now making.
The three most popular ways to consolidate debt
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The three most popular ways to consolidate debt are with a debt consolidation loan, a debt management plan and through debt settlement.
The first, a debt consolidation loan, is where you borrow enough money to pay off all your debts. Depending on how much you owe, this could be either a secured or non-secured loan. A secured loan is where you have an asset you can use as collateral to "secure" it. Mortgages are the prime example of a secured loan as your house serves as the collateral. Auto loans are also secured loans. In comparison, a non-secured loan (sometimes called a signature loan) requires no collateral.
Debt management plan
Debt management plans are usually developed with the help of a consumer credit counseling agency. You may be able to find one of these in your city or town. If not, you can easily find one online.
Whether you go to the agency in person or online, you will be assigned a debt counselor who will go over all your assets, income, expenses and debts and help you develop a payment plan. Your counselor will negotiate with your creditors to get your interest rates reduced and any penalties or late fees waived. She or he will also work with your creditors to make sure they approve your payment plan. Once all of them have accepted the plan, you will begin sending one payment a month to the credit counseling agency. It will then pay your creditors for you.
Debt settlement
The third way to consolidate debts is via debt settlement. This is where you contract with a third party to negotiate with your creditors to settle your unsecured debts (credit card debt, medical bills, personal loans, etc.) for less than what you actually owe and to get your interest rates reduced. Once your lenders agree to the company's settlement offers, you will be given a payment plan and will then send the company a payment each month until you complete your plan.
What makes debt settlement unique
Debt settlement is unique in that it is the only way to consolidate debts where you truly save money. Debt consolidation loans and debt management plans can help you better manage your debts but do nothing to reduce them. In fact, in both cases you're simply moving your debts from one set of lenders to another.
Which would be best for you?
If you owe less than $7,500 your best choice might be a credit counseling agency as it would likely work with you to develop a budget and provide you with helpful information about managing your finances. If you owe more than $7,500, you probably should contact a debt settlement company to settle your debts, which could possibly save you thousands of dollars.
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