Currently, the US economy is driven by consumer credit, making extremely easy for the average consumer to be overwhelmed with debt. Debt consolidation is an effective way that helps you in handling your debt by combining all your unsecured debts together and lowering the required payments on them. By getting a new loan to consolidate all your debt in a single monthly payment that is typically lower than all the individual monthly payments you currently make, you can take advantage of a lower interest rate and having only one creditor to owe your debt to instead of many.
Especially, if you are in California, you can either consolidate your debts on your own or take the help of California debt consolidation companies. Like any other debt consolidation company nationwide, California debt consolidation companies will help you in combining all your unsecured debts in a single, lower monthly payment. The counseling agency may also negotiate with your creditors to reduce the interest rate on your loan, and other charges on late payment or over limit fees may also be forgiven.
What kind of debts can be consolidated?
Most of your debts can be consolidated. Typically, a debt consolidation program includes all types of unsecured debts such as credit cards, departmental store cards, medical bills, personal loans, private student loans, and bounced checks. However, it cannot include your secured debts such as mortgages and auto loans.
What are the types of debt consolidation?
Debt consolidation includes different strategies that can meet the different needs of consumers and eliminate their long-term debt.
a) Debt Consolidation Loan
Debt consolidation loan is one of the most commonly used types of debt consolidation. By consolidating your multiple credit bills into a single payment at a lower interest rate on the total balance of your debt, a debt consolidation loan actually eliminates your debt to multiple creditors. The counseling agency will evaluate your ability to repay your loan. If approved, they will pay off each of your creditors and will undertake all your debt in a single loan at a monthly payment that will be lower than the one you are currently making. However, one thing you should consider is that the loan terms of a debt consolidation loan are generally long. So it takes a long time to become debt free.
b) Debt Settlement
Another approach to debt consolidation includes working with your creditors to lower interest charges and paying off your outstanding balance. Debt settlement is the negotiation of your debt with your creditors by establishing a budget and setting up a series of monthly payments to repay your creditors.
c) Credit card balance transfer
By setting up a credit card balance transfer you can transfer all your credit card balances into a single credit card with a lower interest rate and a higher credit limit that can absorb all transferred credit debts. After you debt is transferred, your monthly payments will be lower because of the lower interest rate. However, you should keep in mind that this type of debt consolidation negatively affects your credit score.
d) Personal Loans
Personal loans can also be used toward debt consolidation because they are unsecured loans with fixed payments over a fixed period of time, and therefore you are not required to put up anything as collateral. It has a fixed amount of monthly payments over a fixed period of time known as the loan term. However, you may face difficulties in getting approved for a personal loan with a bad credit score. Even if you get the loan, you have to pay a very high interest rate.
e) Home Equity Loans
Home equity loans are taken out using your home equity as collateral, which means that you mush have a fair amount of equity in your home and good credit to quality for a home equity loan. As you are required to keep your property as collateral, this type of loan comes at a lower interest rate but if you fail to make payments, your home can be taken away. There are also some tax deductions on home equity loan.
How the debt consolidation program works?
A debt consolidation program aims at lowering your debt by pooling all your debt together into one sum. If you sign up for a debt consolidation program you will work closely with creditors, including collections agencies, banks, and credit unions to lower your monthly payments by lowering interest rates.
a) Get enrolled in the program
First, you will have to go to a debt consolidation company for help. They will enroll you in a consolidation program and the company agent can handle your creditors in a professional way. You will have to pay fees to the company for their services. You will have to pay a onetime representation fee to communicate with your creditors and negotiate with them, and a monthly representation fee, for rendering their monthly service in handling your monthly payments and distributing them among your creditors.
b) Analyzing your financial situation
When you enroll with a debt consolidation company, the representative of the company will help you analyze your financial situation on the basis of your monthly income and expenses and will also help you in preparing a budget, so that you are able to save extra money. You can later use this money to pay off your debts.
c) Negotiating with your creditors
After you get yourself enrolled in the program, the representative of the company will receive calls from your creditors on your behalf, and start the negotiations with them in order to reduce the interest rate and waive off penalties for late payments and over the limit charges.
d) Start to make payment
After the negotiations are over you will have to make a single payment each month to the California debt consolidation company. They will then disburse the money among your creditors. Once your creditor receives the money, they will send you confirmation letters.
What are the benefits of a consolidation program?
In general, a debt consolidation program will help you lower your monthly payments by reducing the interest rate on your debt. In particular, it can do much more:
If you opt for a consolidation program with a debt consolidation company, they will do counseling with you to help you realize your financial goals. They will analyze your financial situation and help you pay off your debts through consolidation.
b) Negotiation with creditors
The consolidation company will also negotiate with your creditors on your behalf, to lower your interest rate and waive off the penalty fees towards late payments.
c) Lowered interest rate
With debt consolidation the interest rate on your debt is lowered, thus, making it easier for you to pay off the debt.
d) Single payment
In a debt consolidation program you are required to make a single payment each month. Instead of handling several creditors at the same time, you will have to make single payment to the consolidation company. Thus, it becomes much easier to pay off your debt and maintain a stress free life.
e) Less time taken to pay off debt
If you opt for a consolidation program, you may be able to get rid of your debts in 4 to 6 years. Thus, in a very short time you will be able to gain financial freedom.
f) Improved credit score
With debt consolidation you can improve your credit score because you are able to pay your bills in a timely manner. Then, the counseling agency is able to negotiate with your creditors and get a favorable credit report on your behalf.
All in all, debt consolidation is an effective way to meet your financial obligations. According to your financial situation and needs, you can choose any of the above mentioned debt consolidation types. However, if you choose to credit card balance transfer, make sure you resist the temptation of buying things using your credit cards and that to on impulse until you fully pay off your debts. You also need to find an authentic debt consolidation company, in order to avoid getting scammed. You can check whether or not the company is accredited with the Better Business Bureau (BBB) and if there are any complaints against them. You can also check the details of this company with your State’s Attorney General.