One of the best things you can do in terms of restoring your peace of mind is to improve your financial situation. Debt consolidation is one excellent way to reach this goal, but how exactly does it work? What is debt consolidation? The purpose of this article is to tell you just that.
Understand the difference between debt consolidation and a home equity loan. Many companies will guise a home equity loan (where you put your home on the line for the debt) as true debt consolidation. That's not always the wisest move to make, especially if you have a family involved. Know the differences and the risks before making that decision.
Look into whether the debt consolidation firm you are considering approaches things individually or if they use a "one size fits all" approach. Quite often, those general approaches can be pretty cheap, but it may not be the best fit for your specific need. They may even cost you more money in the long run. A custom approach is typically the best.
Know why you want to consolidate your debt. Is it because someone recommended it? Did you see a commercial on tv? It's important to know your motivation, because debt consolidation is something that takes a great deal of responsibility. If you cannot come up with compelling reasons that you need to take this course of action, think again.
Find out how the debt consolidation company is funded, and do not do business with them if they refuse to disclose this information. If they say they are a non-profit organization, make sure to check with the state to see if that is true. Also, if they say they are tax-exempt, check that out too.
Find out what debt consolidation means for your credit score. Call the majoor credit scoring companies and ask them whether you will suffer for joining up with a debt consolidation company. This is impoortant, since the companies themselves will give you different stories about what the case is with credit scoring.
You should only use debt consolidation if you plan to put the maximum amount possible down on your debts every month. Yes, your overall monthly expenditures will go down, but that should only remedy the negative balance you have every month. Otherwise, use any extra money to put back into paying off your debt.
Do not sign up for a debt consolidation program before reading their terms of service. These professionals have to give you a written version of their terms of service and explain everything in detail. Find a more reliable professional if the terms of service are not presented in a clear fashion.
Ask your debt consolidation to list their services in writing. By requiring a legal contract stating what the debt consolidation company is to do, you can rest assured that all of your requirements are defined and completed. This legal contract can also protect you if you end up having to seek legal counsel against the debt consolidation company.
Make sure the payments you send to your debt consolidation agency will go to your creditors. Pay the fees you owe to your debt consolidation agency separately. If your creditors are not receiving all the money you send to your debt consolidation service, consider using a different debt consolidation service.
The first thing you need to do is create a list of all the people you owe money to. Even if it is $5 to Uncle Ben, it needs to be listed. It should include the phone company, utility companies, credit cards and your bank. The more comprehensive, the better.
Think about your long-term financial future. It's easy to think in the short-term, as debt consolidation helps you almost immediately cut bills you need to pay on a monthly basis, but think about more than that. Ask yourself what you need to do so that your long-term financial picture looks good.
Try to settle your lowest debts first. Many creditors will offer a lump sum settlement amount. By paying off small debts using a lump sum settlement, you can save as much as 30 percent on each bill. By paying your lowest debts off first, you can use the excess money to pay toward your larger debts.
Prior to getting a loan taken out you should see if you're able to take on some of the debt on your own already. For example, if you have a line of credit on your home, you may have some equity in it you can withdraw.
Remember that completing your debt management program can take as long as five years, so have patience. Remember that five years is a short time in comparison to a lifetime of debt. Once you are free of that debt and learn how to better budget your money, you will feel amazing.
If you talk to a debt counselor who leaves you feeling uncomfortable, don't sign up with them. If they seem to judge you, talk down to you, or promise things you don't think they can achieve, then they aren't the right choice for you. Continue searching out other options available.
Many of us struggle with our finances. It is easy to let debt spiral out of control, and gaining control can be difficult. Debt consolidation can make the process easier and can provide you with much needed peace of mind. It's worked for thousands of people - try it and see if it works for you!
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