How Debt Consolidation works

Posted by Nick Niesen on October 29th, 2010

We all carry a lot of debt around with us if we live in the western world, and sometimes the load becomes almost unbearable, but there are ways in which you can limit your debt burden without paying through the nose to do so. In fact, anyone who doesn?t, is a fool

Debt Consolidation is just plain good sense. What it means is, rather than holding debt in a variety of places ? let?s say two credit cards, an auto loan, a retail store charge account and a student loan ? you take out one nice big loan that pays off everything, and pay one monthly interest rate.

Now, most people don?t do this, and the reason why is simple ? they?re either lazy, or they don?t know that such a thing exists. The reality is, any bank will gladly help you put together a debt consolidation loan, because:

a)You?re transferring your debt to them (and they like that a lot)
b)You?re showing real initiative in turning your finances around
c)You?re not borrowing MORE money, you?re just borrowing it from one place

The way it works is easy. Many kinds of credit incur a monthly minimum charge. For example, the interest on your credit card might be $50 per month, but the credit card company will insist on you paying a percentage of what you owe in total, not just the interest. So your credit card payment for the month will be $150 or more.

Now, if you have two credit cards, that amount just doubled. Now add the late fee for any time you?re short that month can make a late payment ($20), another $25 if you go over your spending limit, and then all those other accounts on top (student loan, retail store, car loan), and you?re paying hundreds of dollars to several entities.

But if you consolidate all those loans into one single debt to one single company, you pay just one simple fee. And instead of the 19%-39% that credit card and loan companies charge, you?re dealing with a manageable rate, and a timeframe that will eventually see you completely debt-free.

Isn?t it time you took that first step with your financial future?