Some people take out personal loans from more than one financier for obvious reasons. You are probably one of those individuals and face the same problems as they do. You have a very difficult time monitoring the current status of all of these dues. Financial experts say no one can blame you for defaulting on your repayments occasionally. After all, you are human. However, you end up accumulating huge debt because of such mistakes. This puts immense strain on your meager finances at the end of the day. You can hardly make ends meet. In such a situation, you could consider opting for a suitable debt consolidation scheme.
Is debt consolidation suitable for getting your finances in order?
The professionals explain that most people have a very vague idea of how debt consolidation schemes work. Under this program, individuals can combine all their multiple debts into one personal loan. This mode of finance is generally available at a lower interest rate. Moreover, the borrowers can also use a single monthly repayment option. This makes it easier for them to pay off their dues within a very short period. This is the first step that enables them to get their finances back in order. In the process, they don’t incur expenses in the form of late fees, penalties, and additional interest charges. This is how they save money when opt to take this step.
Only financial service providers specializing in credit counseling offer such debt consolidation schemes to the public. You may want to apply for such a program to improve your present monetary condition. In doing so, you need to keep the following five important facts in mind:
- Undergoing a counseling session under the guidance of a professional
After selecting a suitable service provider of your choice, you need to speak to one of their professionals. This expert generally listens to what you have to say before suggesting any options. This allows him/her to assess your present financial condition and current status of outstanding debts. Only then does he/she proceed to recommend a suitable plan which meets your requirements. In this session, you get the opportunity to learn more about the scheme and how it can help you.
- Settlement fees to the service provider
You got to remember that debt consolidations schemes don’t come cheap. You’ll have to pay a certain amount in the form of fees to your service provider. You pay this money once your lenders agree to the arrangement. The sum this financier is likely to charge you depend on many factors. This includes the program you opt for, the extent of your outstanding debts and your payment history. On top of this, this financier will also take into consideration your present credit score. You shouldn’t have to worry if it is above average.
- Suitable for unsecured debts
Debt consolidation schemes aren’t suitable for all types of outstanding debts. People may take out personal loans by offering an asset as collateral. This could be their homes or motorcars. These individuals can’t opt for this program. These loans fall under the secure category. Fortunately, this is not the case if they have accumulated credit card dues or unpaid medical bills. This is a fact which you need to keep in mind. It’s prudent on your part to browse through the website of your financier. Taking this step can clear all your doubts on this aspect. You’ll also come to know about this service provider’s reputation in the market from the online debt consolidation reviews.
- Status of your present debts
Debt consolidation doesn’t eliminate your existing debts. This shouldn’t come to a surprise to you. You still need to pay off such financial obligations under this scheme. However, you don’t incur any new ones. Under the program, you pay a single monthly repayment to your service provider without fail. This financier then distributes this amount to all your lenders in accordance with their agreement. In the process, you incur charges which most people associate with repayment defaults. This can save you a lot of money.
- Affect on your overall credit score
You got to remember a very important fact. Any debt relief program is going to have an impact on your overall credit score. You shouldn’t consider this scheme to be any different. The service provider you choose is going to conduct serious negotiation with your lenders. This financier tries to protect your interests during the talks. He/she also endeavors to ensure you get the best terms and conditions depend on your plan. However, he/she can’t make you any promises that taking this step won’t after your creditworthiness. Your lenders may downgrade your score slightly for obvious reasons. However, you endeavor to repay the principal portion of your loan with a short period. Taking this step can have a reverse effect on your credit score.
Can you save money with debt consolidation?
An important question bothers people aren’t sure whether debt consolidation schemes are suitable for them. They want to know how much money can save if they opt for such programs. The same thought may even cross your mind. Experts say it depends on certain factors. These include the plans they choose, the duration of such policies and their conditions. However, the professionals do point out the following two important facts on this aspect:
- Tax implication
Normally, the officials of the Internal Revenue Service don’t allow you deduct interest on unsecured loans. This is not the case when you consolidate your multiple debts under a single scheme. However, you need to secure the entire outstanding amount with a suitable asset. Only then can you avail this tax advantage and save money. However, you won’t see the actual cash in your hands.
- Lower repayments
Under this scheme, you end up pay lower amount every month to eliminate your debts. This is because of a reduction in the overall interest rate. On top of this, your lenders may agree to reverse some of your penalty charges. This depends on the arrangement they have with your service provider. However, you end up saving money in the process.
Debt consolidation schemes work wonders for people with multiple outstanding debts. Not only do these individuals get their finances back in order. They also save money in the process. All of them just need to go through the above two important facts on this aspect. They’ll know the truth.