Debt is a trap or hole that many people cannot get themselves out of. The good news is that there are many solutions. The most effective solutions, however, are bankruptcy and debt consolidation. Each of these options has pros and cons that consumers need to analyze before deciding to make a decision. Consolidating debts has more benefits than bankruptcy, so it is the better option. Bankruptcy, on the other hand, is something that should only be considered after everything else has failed.
Debt consolidation is the process of paying off all your outstanding, high-interest, high penalty debts using a new low interest loan commonly referred to as a debt consolidation loan. By doing this, you will have only one payment to make every month, which is convenient. Secondly, you will be able to boost your credit rating by settling numerous debts at once and having their statuses updated with consumer credit referencing agencies. Thirdly, you will be able to avoid high interest payments and punitive penalties, so you can save a lot of money. Below are the simple steps to follow when consolidating your debt:
Step 1: Add Up Your Debts
You may have credit card debt on multiple cards, a cash advance on your salary account, some personal loans and many other types of debts. You might also have a bad credit car loan. All these debts should be added up to come up with a concrete figure of the outstanding bad debts that you may have.
Step 2: Apply for a Suitable Loan
You do not want to apply for another high-interest loan to use for consolidation. What you should do is search the market for the lowest rate loan and apply for it. If approved, you can use the money to settle your bad credit accounts. Another great option is to take a loan against the equity you have built in your home so far. Whatever the case, you need an affordable loan.
Step 3: Pay Your Debts
After the loan has been approved and disbursed, the next step is to pay off all the debts you had listed. Basically, every debt you had added up should be paid off fully. You shouldn’t be left with a single cent after paying off your debts.
After settling your debts, be sure to have your credit rating updated with consumer credit reporting agencies. This will help boost your credit score and help you get cheaper loans in the future.