Visit Cornie Herring's website at http://www.studykiosk.com/CreditBasics to find more debt relief resources on the option available for you to get rid of debt. Learn how debt consolidation, credit counseling and other debt solutions work to help you get a debt free and explore the best option that best fits your financial situation.
Debt consolidation is a common solution for resolving debt problems that plague millions of households. But, it may not fit with your debt situation. You should determine whether debt consolidation is the best option to resolve your debt problem before consolidating your debts. Use the 5 steps below as your guidance to determine if the solution suits your needs:
Step 1: Determine total debt you have
First of all, request a copy of credit report either from one of the credit reporting agencies either online or offline. Once you have received your report, review it and determine how much debt you have. Your credit report will contain important information about your credit status. If your credit score is not badly damaged by your debt condition, then you may take the advantage to consolidate all your debts into a lower interest-rate consolidation loan. Otherwise, you might find fewer options to recover your financial healthiness.
Step 2: Determine whether you are qualified for a consolidation loan
Try to contact a few debt consolidation agencies and ask them to send you their offer details. In most cases, debt consolidation that involves a consolidation loan will need to be secured with an asset such as home, land or boat. These secured consolidation loans are offered in much lower interest rate than unsecured loan. Review the requirements to find a consolidation loan you are qualified for. You may need to meet a minimum FICO score with a minimum monthly income in order to be eligible for the loan.
Step 3: Determine how much you will save with a consolidation loan
A good debt consolidation program should help to improve your debt situation, not the other way round. Ask the debt consolidation company to give you a quote that including all fees involved. If you find that you need to pay more than unconsolidated debt, then it is not the right program for you. Move on to find the offers from other companies. If you can't find one program that saves you money, then most probably the solution is not the best option for you.
Step 4: Determine if you afford to pay the loan
Most consolidation loans are mortgage, which will be secured with an asset such as home, land or boat. If you default the loan repayment, the creditor will foreclose on your asset used to secure the loan. Therefore, if you don't have money to cover for the loan repayment, then debt consolidation is not right for you. If you do, then go to the step 5.
Step 5: Evaluate the benefits versus its complications
There are many advantages that you can benefit from debt consolidation, such as lower monthly payment, reduce interest rates and ease in debt management with one monthly payment. But, with debt consolidation, you may take longer to repay the bill, and you will spend more in interest over the life of the loan. If it is a right option for you, its advantages should outweigh the complications. If vice versa, the solution is not your best option.
Summary
Use the above 5 steps to determine whether debt consolidation is your best option. The rule of thumb, if it is the best option, it should work in improving your debt situation with the benefits that overweight its complications.
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