Don’t you just love the first of the month? You get all that interesting mail from creditors… you get to spend hours writing and mailing checks… and at the end of the money, there is always a lot of month left…
Well, debt consolidation will probably not solve all your financial problems… but it just might help!
Debt consolidation means combining a lot of little payments so you only have one large payment. There are two major reasons to consider debt consolidation:
- Convenience – The thought of writing one check a month instead of fifteen checks, is appealing… very appealing. But the real advantage of debt consolidation is that you may be able to save significant money, if you are careful and clever.
- Cost Savings – This is the REAL reason you should consider consolidation. You can save substantial amounts of money when you consolidate your debts, but only if you really understand the process. So let’s take a look at your debt consolidation options.
First, let’s see if you are a good candidate for debt consolidation:
- Are most of your bills variable amounts each month (like electric, phone, and groceries)?
- Do you pay all or most of your credit card charges each month?
- Are most of your existing loans, low interest loans like mortgages?
If you answered YES to most of these questions, you likely will see little benefit from debt consolidation.
But:
- Do you have one or more credit cards with balances that roll over each month?
- Do you have other “revolving credit” accounts?
- Do you have one or more finance company or high interest personal or auto loans?
If you answered YES to most of these questions, debt consolidation could help you.
The most common approach to debt consolidation works like this:
- You will take out a new, debt consolidation loan. The interest rate on this loan should be relatively low.
- You will use the proceeds to pay-off your credit cards, revolving credit accounts, and personal loans.
- You are then left with only one payment instead of many… that’s the convenience part. But there are at least two ways to save money in this process.
Saving Money with Debt Consolidation
There are two major ways that you can save money with debt consolidation:
- Interest rates – It is common, on credit cards and personal loans, to pay interest of 10%… 15%… even 29% or more. A debt consolidation loan can carry an annual interest rate of less than half the rate you are paying today… and that can add up to substantial savings. A word to the wise… when dealing with high-interest credit cards, use the PCD approach:
- Payoff the credit card
- Cut it into tiny, tiny pieces, and get a…
- Debit card.
- Call the lender and ask for the total payoff amount.
- Now ask the lender if they will consider a reduced payoff if payment is made within a week or so.
- If the lender gives you a lower payoff, then offer to pay 90% (or some other discount) of their offer. If they accept, you’re good… if they refuse, you still have their reduced payoff offer.
- In either case, you stand to save significant money.
- Negotiated Payoff – Many credit card and other lenders will consider a reduced payoff… here’s how to approach them:
Debt Consolidation Services
There is a final option available to help consolidate your debts. There are organizations that offer debt consolidation consulting and services. Some of these organizations are non-profit… others are for-profit corporations… all charge fees in some form. And as always, be sure you understand what you are receiving and what you are paying.
Debt consolidation can make a difference in convenience and cost… just be sure you do your homework first!
