I just read somewhere that eventually, everyone sits right down to a banquet of consequences. This is also true in the case of debt. It's possible to have an enjoyable experience accumulating debts but eventually you will see consequences plus they won't be pretty. For those who have an overwhelming quantity of debt, you realize precisely what I am talking about. You're probably receiving harassing phone calls from your creditors or, worse yet, from debt collectors both day and night. You may be thinking about altering your phone number just to eliminate that never-ending barrage of calls. But trust me when i state that if you do this, you'll enjoy only short-term respite from those nasty calls as creditors are amazingly skilled at finding those who have changed their numbers.
How debt consolidation works
The easiest explanation of methods debt consolidation reduction works is that you use new debt to pay off old debts.
There are several ways you can make this happen. For instance you can get a bank loan and pay off all your creditors. Alternately, you can visit a non-profit consumer credit counseling agency for help. Or you could perform a balance transfer where you transfer the balances on high-interest credit cards to 1 with a lower rate. It's even easy to get a 0% interest balance transfer card, which may need you to pay no interest whatsoever for as few as six or as many as 18 months.
How a debt consolidation reduction loan saves money
All of these types of debt consolidation reduction can help you save money. Let us take a bank loan as an example and let's suppose you owe $15,000. In case your debts come with an average APR of 20% and total payments of $600 a month, it would get you 17 years being free of debt and you would pay a total of $25,611. On the other hand, if you were capable of taking out a debt consolidation loan at 9.95%, you could be free of debt in 48 months, and would pay you use just $18,112 or perhaps a savings of nearly $7,500. You'd be also debt free 13 years faster.
How consumer credit counseling may help
A second popular method to consolidate debt is through consumer credit counseling. The way this works is that you are assigned a counselor who'll assist you to create a repayment plan and negotiate with your creditors to get your interest rates reduced. If all your creditors agree to your plan, you would be asked to send the credit counseling agency one payment a month until you completed your plan. While it's impossible to say exactly how much you'd save with credit counseling, it ought to be a decent amount.
The way a balance transfer can save you money
You might cut costs should you be in a position to transfer your balances on high interest credit cards to one having a lower interest rate. Going back to the illustration of $15,000 in debt in an average APR of 20% and when you wanted to be debt free in 36 months, your payment per month could be $558. In contrast, if you transferred that $15,000 indebted to some card having a 12% interest rate, your monthly payment could be just $499 or perhaps a savings of nearly $60 per month.