Debt consolidation is nothing but a practical way for people in heavy financial liability to assist make their debt payments more manageable. It involves taking out of one larger loan and making good use of that loan to pay off several other smaller loans. For instance, you may have three unsecured debts of 100 each. Then you would like to consolidate them into a single unsecured loan with a lower interest rate. This would surely help you in the long run as you can now make lower monthly payments to your creditors and you will also get some relief from harassing phone calls.
However, before availing the advantages of debt consolidation you should first decide if it is the correct option for you. There are actually two ways of managing debt: managing by yourself with the help of professional help or using debt management companies. If you do not have enough cash on hand to spare then managing by yourself is probably the most suitable option. But if you have adequate cash you can go for debt consolidation.
A debt consolidation loan allows you to merge all your existing obligations into a single larger obligation. It means that you are paying only one large installment instead of several smaller ones. This can be particularly useful when you want to consolidate all your credit card obligations, because you can just wave goodbye to paying various lenders individually. You can just concentrate on one lender. And if you have to deal with a number of creditors at the same time, then this option is certainly the best one.
Debt consolidation loan charges a low interest rate. This is not surprising considering that you are just transferring your debt obligation from multiple lenders to a single lender. Also, it may take a while before you receive the full amount you had lent to the previous creditor. Hence, your interest rate is lower than that of the original debts. In other words, it will take you longer to pay back the debt consolidation loan but it is easier to pay.
On the contrary, debt management is a process in which you negotiate with your creditors in order to reduce your interest rate or get rid of any penalties on late payments. You then make a plan with the debt management company to repay all your outstanding balances at a specific amount per month. A debt consolidation company will then distribute the money you pay them to your creditors. If you decide to do the negotiation by yourself, then you may get as little as half of what you originally owed, but it is more difficult and will take more time.
Whichever option you choose, the important thing is that you manage all your debts better so that you do not accumulate more debt in the future. And once you are free from all your debts, the only thing you should worry about is your credit score. As long as you pay your installments on time and keep a good payment history with all your creditors, you will see improvement in your credit score. By negotiating with your creditor you could see a reduction in the amount of debt you need to pay, visit https://www.arizonadebtreliefhelp.com/tucson-az/ if you need any help on debt relief.