Many of these have looked to debt consolidation as the answer to their problems.
Debt consolidation loans are an effective means of managing money and controlling debt that may have become difficult to control.
Easier Interest Rates More than one debt generally equals more than one interest rate, and often multiple finance fees.
All of these expenses can be from 6% to 20% of the principal owned, dependent upon how much money is owed.
Many debts carry a strict deadline.
Even on an interest-free debt, sometimes the deadline comes with no way to pay the money back in time.
This can often result in retroactive interest being charged, going back to the date the credit was issued.
Needless to say, this can add up to a great deal of money.
Debt consolidation removes those threats.
As a singular account, rather than multiple debts, it carries a lower interest rate.
As payment for other outstanding debts, it moves the deadline to make payment, giving the borrower time to finish payment at a more reasonable pace.
One Monthly Payment Debt consolidation means just that.
All debts are consolidated into one account.
With only one bill, the danger of missing a payment because there are so many bills to handle is gone.
Save Money The acceptance of a debt consolidation loan means more time to pay off the money owed, because the former debts are paid.
Now the payments are made by the schedule set in the consolidation agreement, the exact terms determined by circumstances of the borrower.
Moving the deadline ahead six months to a year removes the specter of bankruptcy or failure to pay.
Investment Without Extra Taxes The consolidation loan is an investment of sorts.
For instance, paying a credit card loan off with the consolidation money can save as much as 20% in future payments; completely tax-free.
This is the reason that credit cards should be paid first upon acquiring the loan, along with any other debts that charge a high rate of interest.
The act of removing the debts that last the longest will literally save money.
This also stretches the consolidation loan money so more debts can be paid off with it.
Manage Money With More Skill People with a good credit rating are less of a risk to those who deal in financial matters.
Six to twelve months after the consolidation loan, the borrower will see his or her credit rating restored to levels where creditors might consider giving them business once more.
The repayment of the consolidation loan is proof to creditors that the borrower has learned to manage money and engage in responsible spending habits.
Debt consolidation requires discipline to avoid falling back into the problems that caused the need for consolidation in the first place.
A credit rating can only be restored through responsibility and discipline.
Some experts even go so far as to advice those taking a consolidation loan to destroy all credit cards but one - and that one card to be used only in emergencies.