What Is Credit Consolidation?

Most Americans are grappling with multiple debts, and this situation is likely to continue. Debt today seems to be as American as pie. If you are a household owner struggling with several loan repayments, you are not alone. According to Credit Card News, the average American has $3,600 in credit card debt.

A similar survey by Federal Reserve Bank of New York and the U.S. Census Bureau shows the average household with any debt owes an astonishing $134,643. The total U.S consumer debt today stands at $12.58 trillion. The question is, is there a way to get out of debt without burning your finger seven more? Keep reading.

Getting out of the Debt Hole

As a household owner, these numbers might not mean much to you because what matters is a way out of this mess.  The first rule of holes states that when you are in a hole, you should stop digging. As such, if your debt situation is dire, it is time to look for a solid strategy to get you out of this hole.

Truth be told, this is easier said than done and it is no wonder most of the people struggling with debt cannot afford it in the first place. This is because there are so many borrowing options and household owners find themselves going for more loans to try and offset what they already owe.

This is where credit consolidation comes into play. While there are many other financial strategies that have been tested in dealing with debt, there is no denying that debt consolidation remains the simplest and most practical approach. Forget the quick-fix strategies you read about every day because truth be told; they don’t work.

If you have been trying to find an effective yet simple way to deal with your spiraling debt, it is time to get more insight on credit consolidation.

Below are some highlights on this debt refinancing alternative to help you make an informed decision:

1. Credit Consolidation in Detail

Credit consolidation is in the simplest a financial approach where you take a new loan to repay all your existing debts. This is a personal financial strategy recommended for borrowers who are struggling to service multiple loans.

It is understandable that handling multiple bills can be an arduous task and eventually most debtors default.  This, in turn, leads to further financial turmoil including ruining your credit score. If you have a high consumer debt, this is the most practical way to get back on your feet financially.

Credit consolidation is done for unsecured loans and in most cases; a debt consolidation company will offer better rates for the new loan. Instead of paying for different loans each with its terms and interest rates, it is easier to handle a single loan from the credit consolidation company.  Common types of debt consolidation include student loans, military consolidation and medical debt consolidation among others.

2. What Credit Consolidation is not

If you do a quick search for credit consolidation in your city, you will find hundreds of organizations promising to offer these services. However, if you are keen enough, you will realize that what they are offering is not consolidation but other unclear debt solutions. While debt settlement and debt management are commonly lumped together with debt consolidation, you should know they are different.

With debt settlement and management programs, there is a third party involved who will represent you in negotiations with your creditors. The idea is to get a better repayment plan for you.In some cases, you will be requested to stop payment to your creditors, and this ruins your credit score even further.

The idea here is to arm-twist your creditors into giving you a better deal, but ultimately, it will affect your credit score. Another feature of these debt solutions is the fact that you will be sending your repayments to a third party who will then distribute the payments to creditors.

Credit consolidation is straightforward; you buy a new loan to repay all smaller loans and start repaying the lender. There are no negotiations involved, and after the repayments, the information on your credit report will indicate that the loans have been fully repaid. This improves your credit score. For debt settlement, your credit report will indicate that the loan has been settled but not repaid.

3. Benefits of Credit Consolidation

There are many reasons to consolidate your debts. Below are some of these:

• Easy single payment –Repaying multiple loans at the same time is a Herculean Tackling your bills becomes a full-time occupation, and this greatly affects your life. Luckily, when you consolidate your debts, you only have to worry about one single payment which is easier to do. There are no multiple deadlines to remember and collection agencies on your neck.
• Lower interest rates – A consolidation loan allows you to enjoy lower interest rates.For instance, if you had several credit cards that have maxed, this translates to high-interest rates which eat into the amount you pay monthly. With a single loan, the rates are lower, and you will have the better cash flow to deal with day-to-day expenses.
• Better credit score – With a single payment to deal with, you are better placed to start repairing your credit score. The smaller repayments are included in your credit report and better still, every monthly payment you make is included in the report. This improves your score gradually.
• Peace of mind – Nothing is as irritating and stressful as dealing with aggressive collection agencies. They will call and at the most inconvenient times and most of them are impolite. These calls will become a part of your life, adding more stress unless you consolidate your debt and deal with one lender.

4. Finding a Credit Consolidation Company

There are many debt consolidation companies, but it is advisable to go for a reputable lender. Do your due diligence by reading online reviews and checking the BBB for more information. It is always advisable to use a registered organization and a member of either the National Foundation for Credit Counseling (NFCC) or the Financial Counseling Association of America (FCAA).

These industry organizations set high standards for members to ensure customers get only the best services. It is also important to look for not-for-profit organizations which provide consulting and financial management advice as this ensures you don’t fall back into debt. To avoid consolidation scams, ask for referrals and recommendations from past clients. More importantly, read reviews and ask the company for their physical address.

Credit consolidation is a solid strategy to deal with ballooning debt. It can help you save your assets and improve your credit score at the same time. If you are struggling to repay your debts, it is time to stop digging and getting on top of the situation. Go on and identify an established credit consolidation company and find the best loan package for your situation.