If you are in too deep and constantly getting phone calls from companies demanding payment, debt consolidation can be a blessing. However, do not expect this plan to have an instant, positive effect. It takes time for it to work. It takes a while to get out of and you have to plan for it. The following paragraphs can help you make wise decisions when it comes to consolidating your debt.
Consider your best long term options when choosing a company to consolidate your debts. You want to manage your debt, but also determine whether the company is going to help you going forward. Some companies are able to help you with financial issues now and in the future.
If you’re struggling financially, you may want to think about filing for bankruptcy. However, filing for bankruptcy will ruin your credit score. That said, if you can’t pay off a consolidated loan, you’ll end up with bad credit anyway. A bankruptcy filing will help you reduce debt and regain financial control.
When looking to consolidate your debt, do not assume that non-profit companies are trustworthy or that you won’t be charged much by them. This term is often used as a disguise for predatory lenders and you could end up with very unfavorable loan terms. Go to a company recommended by a friend, family member or the Better Business Bureau.
Find out more information about the interest rate for the debt consolidation. An interest rate that is fixed is the best option. Throughout the course of the loan, you know precisely how much you have to pay. Adjustable rates on a debt consolidation programs should be avoided. In the long run these options always end up costing much more due to the eventual high interest rates.
You might consider drawing money out of your retirement fund or 401K to pay your high interest loans. You will then make payments to pay the loan back. Otherwise, the money is considered an early distribution of retirement funds, and you are on the hook for penalties and taxes.
Try and confirm that you’re working with qualified debt consolidation counselors. Do these counselors have certification from a certain organization. Are they backed by reputable institutions? This can help you sort out the good companies from the bad.
When consolidating your debts, make sure to consider which debts are worth consolidating and which should be kept separately. It makes no sense to switch balances from a charge card that doesn’t charge interest to one that has a high interest rate. Your lender can help you evaluate each loan to determine if it should be consolidated or not.
If you understand the process of debt consolidation, it can help you get out of debt over time. You can’t just place a call and watch it happen, you need to do your homework. This article has discussed some of the many ways that you can choose to get out of debt, but it is up to you to take the extra mile!