How to Better Manage Your Debt
While the current turbulence of today's economic market conditions has resulted in many consumers focusing on paying of their outstanding debts, overall consumer debt in the United States is still pretty high.
Total U.S. consumer debt, which includes both credit card debt and non-credit card debt, with the exception of mortgage-related debt, reached $2.56 trillion by the end of 2008, according to the Federal Reserve's April 2008 G.19 report. Of this total debt, $956 billion represented revolving debt, which includes credit cards, and $1.608 trillion represented non-revolving debt.
With so many Americans still in debt, debt consolidation is on the minds of many consumers. When it comes to debt consolidation, there are two primary methods utilized: debt consolidation loans and debt consolidation programs. Each solution offers its own set of benefits that consumers should consider carefully before deciding on one or the other method as a way to better manage their debt.
Debt Consolidation Loans
Many consumers carrying debt from several creditors can benefit from a debt consolidation loan, through which multiple debts are essentially combined into one new consolidation loan.
A debt consolidation loan offers several benefits:
Multiple Ways to Secure a Consolidation Loan: For those considering a debt consolidation loan, they will be pleased to learn that they have three primary methods from which to choose to consolidation their debt. The three common consolidation loans include refinancing your home with a cash-out option, securing a home equity loan and obtaining a personal consolidation loan.
Simplified Monthly Payments: A consumer can go from juggling multiple debt payments each month to managing just one payment. In addition to simplifying your monthly budgeting, consolidating your debts into a single loan can help you avoid accidentally missing a payment or making late payments, which will only further increase your debt and harm your credit rating.
Lower Monthly Payments: In addition to reducing the number of monthly payments you must keep straight each month, a consolidation loan often can provide total lower monthly payments by offering lower interest rates and an extended repayment window. It is important to note that you must carefully balance a consolidation loan's lower interest rate and repayment period to ensure that you do not end up paying more interest than you would have if you had not consolidated your debt.
Debt Consolidation Programs
While a debt consolidation loan is essentially a new loan that is secured to pay off your other debts, a debt consolidation program is a service that works with your existing creditors to pay off your debts.
As with a debt consolidation loan, a debt consolidation program offers several benefits:
Interest Rate Reduction: A debt consolidation program will work with your creditors to negotiate reduced interest rates on your debts, which will result in lower monthly payments.
Simplified Monthly Payments: Just as with a debt consolidation loan, a debt consolidation program coordinates all of your monthly payments for you. In return, you will need to make a single monthly payment to the debt consolidation company with which you have contracted.
Debt Management Plan: A debt consolidation service will work with you to develop a debt management plan that essentially serves as a road map to being debt-free. Many debt consolidation services contend that they can help clients to be debt-free in four to six years versus 20 years, which is the time it often takes for consumers to pay off their credit cards completely by making the credit card minimum payments.