What You Should Know
Here's a small guide to what is debt consolidation. Debt consolidation may be an answer for the people with credit problems. Debt consolidation is borrowing enough money from one lender to pay off all your other debts. When you consolidate:
- You will usually pay out less money each month.
- You make payments longer.
- You make only one payment each month, to the new lender.
- You usually pay more money in finance charges to consolidate debts.
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Debt is a way of life today. Everybody owes somebody something: services, products or money. Financial debt (owing money) is a choice you make to defer payment on something you want or need now. In return for this, you usually pay the person or business (called the "creditor") extra money ("interest"). Debt is not a problem as long as you can repay.
The most important step in conquering debt is controlling spending. This starts with being a critical consumer and learning to separate real needs and desires from artificial ones. How much debt is too much depends on your income and what it costs for you to live.
When you see financial problems coming, the first step is to take stock of your financial situation. Most problems can be remedied with planning and budgeting:
- Face up to how much you owe.
- Cut back on nonessentials.
- Determine all sources of income.
- Track spending.
- Determine which bills are essential and which are avoidable.
- If you do decide to use debt consolidation, shop around for the best deal.
- Quit charging and apply extra cash to reducing balances.
- Seek financial counselling.
- Find ways to generate extra income.
- Make debt reduction your first priority.
- Call your creditors to see if you can work out some change in monthly payments that will ease the pressure.
Before you choose whom you will get the loan from, find out the following information from each place:
- The amount of your monthly payments.
- How long you must make payments.
- The charge for the service.
- What happens if you are late making a payment.
- The annual percentage rate (APR).
- What the total amount is that you will pay.
- What happens if you miss a payment.
Making only one payment a month may make you think you are better off than you actually are. You may be tempted to buy something else on credit, and before you know it you could have an even worse problem: too many bills with too little income.
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