Debt consolidation is considered one of the safest and the best of all the debt relief options. This is because, unlike debt settlement, you aren't required to miss payments to consolidate debt. Therefore, it is not only supposed to help you with debt pay off, but also in improving your credit in the long run at the same time. However, does it mean you must consolidate debt if you start having problems with the bills you owe?
Before you go on to consolidate the debts owed, it would be important for you to consider if debt consolidation is the most suitable option for your situation. In addition, it is all the more important for you to consider all of the consolidation factors. To know more visit here.
Options to consolidate debts
If you are planning to consolidate your debts, there are two options, and these are:
Consolidating debts of your own – You can consolidate debts of your own, depending on the debts you have. There are two main ways in which you can consolidate the debts, one is the balance transfer and the other is taking out the consolidation loan.
Debt consolidation program – You can enroll into a debt consolidation program, where the consultant negotiates with the creditors, on behalf of you, so as to reduce the interest rates. As the interest rate gets lowered and as the re-payment plan is set, you can go on to make a single monthly payment with the consolidation company.
Should you consolidate debts or not?
If you are caught in a great dilemma and are unable to decide whether you should consolidate your debts or not, you need to consider the problem you are in. If you think that you owe too many debts, and if these are unsecured, debt consolidation is a good option. If the interest rates on the debts owed are too high, debt consolidation can help in lowering the same.
On the other hand, if you have debts which are too large and if you have started missing payments, it would be better for you to settle the debts. Therefore, not all of the debt problems require you to consolidate debts, in order to be able to solve the debt issues.
It is generally believed and said that debt consolidation helps you improve your credit. However, is it actually true that consolidation only helps with credit improvement and has no negative impact on your credit? When you consolidate the debts, all of the debts are rolled over as one. As a result, the other accounts are left intact as the zero balance accounts. It is supposed to help you in avoiding debts if you close down the zero balance accounts. The fewer the credit cards, the fewer the instances of debts incurred.
However, when you close down accounts, the credit limit you have gets lowered but it shows that you are making high credit usage. As a result, it hurts your credit. Therefore, what you need to do is lower credit usage all the more, and avoid closing down all of the accounts at the same time. This will not only help you in paying down debts, but also to improve your credit at the same time.