Use Debt Consolidation to Eliminate High Interest Rate Debts for a Brighter Future
I’m sure you have seen those late night television commercials advertising debt consolidation. Debt consolidation seems to be an easy process to eliminate high interest rate debts. With behavior modification and the help of debt consolidation a debtor can turn their financial future from dreary to sunny.
What is debt consolidation?
Debt consolidation is when a person takes out a loan that pays off all of their outstanding debt so they only have to make one monthly payment instead of several smaller payments on several different loans. Majority of the time, debt consolidation is done for credit card debt with high interest rates. The goal of credit card companies is to make revenue off of your debt. Continually paying high interest rates every month just grows the credit card company’s profits while ruining your finances.
Secured vs. unsecured loans
The two main types of loans when it comes to debt consolidation are secured and unsecured loans. A secured loan is when a person has collateral to grantee the loan such as a home. A secured loan comes in the forms of a second mortgage or a home equity loan. These loans usually have lower interest rates because if you default the financial company can make back their losses by foreclosing on your home.
Unsecured loans are for people who do not have collateral, but have good credit. These loans are safer for the individual because if they default they will not lose any property, but their credit score will be greatly damaged. Do your research so you can make an educated decision on which type of loan is right for you.
The positives of debt consolidation
Debt consolidation makes managing a budget much easier. A person doesn’t have to keep track of several different bills at once and allocate enough money to each one. The debtor will make one easy payment a month, can even be automatically withdrawn from a checking account, and not have to worry about it until next month. Debt consolidation provides the debtor with a piece of mind. It makes life less stressful and more organized.
Per CreditCards.com the average credit card debt in the USA is $4,878 per adult. The average APR is 12.76%. So the average person is paying $600 a year just on interest alone. Many people can only afford to pay the interest rate so they never make a dent in the actual debt. Don’t allow the credit card companies to make a profit off of your debt.It’s an individual’s responsibility to take care of their financial future. Use debt consolidation to guarantee a brighter future.
This article was written by Steven Moore, who has been covering consumer finance and the credit card markets since 2006. You can learn more and connect at his Google+ page.