How Does Debt Consolidation Work (In Plain English)

How Does Debt Consolidation Work (In Plain English)

For many families, your financial picture is clouded by multiple sources of credit and debt. The perils of a muddied debt situation can consume even the most responsible families and bring about a complicated and costly budget. Oftentimes, the amount of income changes for you or your family and no longer meets what is necessary to satisfy accumulated debt repayment. In those situations, default is a likely result which can cause serious damage to your credit rating and possibly force foreclosure or repossession. In order to avoid the financially catastrophic consequences of poor debt management, you can seek a debt consolidation service to simplify your debt and in many cases lower your monthly payments.

Debt consolidation is simply any means by which you encompass many lines of credit or other debt into one entity. This can be achieved by opening a credit card or line of credit and paying off multiple accounts with one debt consolidation account. Consider this example: A person has a personal loan with a balance of $2,500, a car loan in the amount of $15,000, a credit card with an outstanding balance of $3,000, and a department store charge account with a balance of $1,500. Each of those accounts has different payment terms, interest rates, and other conditions. Keeping up with each account is an arduous task and allows for mistakes to occur – mistakes that result in penalties in the form of fees and other restrictions. Debt consolidation would encompass all of those accounts under one account with a single set of conditions for repayment. 

Instead of making four payments, the person in the example would only need to make one payment per month. Additionally, several of the debt consolidation options available will make consolidation an effective means for reducing the interest rates on the outstanding debt, thus lowering the monthly payment amount. You can choose to parlay the lower payment into an effort to more quickly satisfy your debt by maintaining the previous payment amount

Debt consolidation can often be used to combine a whole host of debt: car loans, personal loans, home repair bills, medical expenses and more. Finding the right debt consolidation method is an effective way to simplify your debt, lower your payment amount in order to have a more manageable budget and keep your family’s financial footing on solid ground. 

You May Also Like

About the Author: Pat

Leave a Reply

Your email address will not be published. Required fields are marked *