Cobalt Advisors and Credit 9 have joined Saxton Associates and Hornet Partners in flooding the market with debt consolidation and personal loan offers in the mail. The problem is that the terms and conditions are at the very least confusing, and possibly even suspect. The interest rates are so low that you would have to have near-perfect credit to be approved for one of their offers. Best 2020 Reviews, the personal finance review site, has been following Carina Advisors (also known as Corey Advisors, Pennon Partners, Jayhawk Advisors, Clay Advisors, Colony Associates, and Pine Advisors, etc.).
Consolidating your debt is a great way to manage your debts more effectively and reduce the overall debt amount. There are many effective ways to consolidate your debt, but you should be aware of some of the risks those options involve as well. Here’s an overview of this financial process along with some debt consolidation options you can consider.
What Is Debt Consolidation?
Debt consolidation is a process in which you combine multiple debts into one single payment every month. This allows you to set debts with varying payments dates to one specific date. As a result, you can manage your debt payments better, and you can save money too. Consolidating your debt does have its advantages, but it can pose a risk if you’re not careful. If you’re planning on opting for this financial plan, you should know what debt consolidation options you can use.
What Are Some Debt Consolidation Options You Can Use?
There are various ways people consolidate their debt. Here are some common debt consolidations options you can use to make your payments easier to manage.
Acquiring a Home Equity Loan
A home equity loan involves putting your house as collateral in order to receive a sum of money. You can use that loan to pay off all of your debts. This way, you’ll only have the home equity loan to pay off. However, this option is only possible if you have equity in your current house. The advantages of this option include lower interest rates, more manageable monthly payments, and a fixed repayment end date. On the other hand, some of the disadvantages include more closing fees, less flexibility, and your house as collateral. So, make sure that you can make the home equity loan payments comfortably because you’re putting your house on the line.
Hiring a Credit Counseling Agency
One of the most common debt consolidation options is to hire a credit counseling agency to consolidate your debt. The agency will make the debt payments on your behalf while you pay the agency a single monthly payment. This way, your payment will be consolidated. The good thing about this is that it has reduced interest rates, flexible payment options, and a fixed end date for repayment. The main disadvantage is that you may have to close your existing credit cards.
Acquiring an Unsecured Loan
You can acquire an unsecured loan to pay off your existing debt and consolidate your debt in the process. An unsecured loan is one that’s not backed by collateral. So, this is possibly one of the safest debt consolidation options you can opt for. A personal loan is an example of an unsecured loan. You can acquire one from a bank, an online lender, or a credit union. The advantage of this loan is that it has a relatively low interest rate. This means that you’ll have a smaller principal for your monthly payments. However, you’ll need to qualify for a good interest rate in order to make this a useful option.
What Are the Pros and Cons of Debt Consolidation Options?
Before you decide whether to consolidate your debt or not, it’s important to first understand some of the pros and cons of this process.
Pros of Debt Consolidation
Here are the pros of consolidating your debt.
Payments Are Easier to Manage
It’s a lot easier to manage one payment instead of various individual ones. Because of this, you’ll also reduce the chances of forgetting to pay off some debts. As a result, you won’t harm your credit score either.
Lower Interest Rates
One of the main advantages of debt consolidation is lower interest rates. Therefore, you must make sure to opt for those debt consolidation options that have lower interest rates than you were paying before.
Smaller Total Debt Amount
With a lower interest rate, you’ll be paying less principal each month. A smaller principal amount means that you’ll be paying a smaller debt amount overall.
Move Out of Debt Faster
You can achieve a debt snowball effect by paying a smaller debt amount in your monthly payments. This means that you can save money for your next month’s payment. This way, you can save and pay off your debt faster.
Cons of Debt Consolidation
Here are the cons of consolidating your debt.
You May Extend Your Debt
With a lot of credit card refinancing and debt consolidationslinmg options, the principal per month is reduced by extending the loan term. As a result, you may be in debt for a longer time than before.
You Can Worsen Your Credit Score
Defaulting in your debts negatively affects your credit score in most cases. Also, the larger payments will affect your score more than smaller ones. So, defaulting in your consolidated debt can greatly hurt your credit score. In addition to that, going bankrupt can bring your credit score below 600 as well. You need to find the best way to consolidate debt.
What Are Some Alternatives to Debt Consolidation Options?
You can look into other alternatives if you’re worried about the dangers of debt consolidation options. Here are some things you can do instead.
Make a Plan on How to Pay Your Debt
Make a note of some of the bigger debts and focus on getting those out of the way first. Start with one at a time and move on to the next account when you’re done with the first. Keep this up, and you’ll be left with some of the smaller debts, which you should be able to pay off with greater ease.
Consider Debt Settlement
Settling your debt is a strategy through which you can negotiate with your creditors to satisfy the account. This is achieved by paying a fraction of the outstanding debt of your account. You should only consider debt settlement if your accounts are in collections or are charged off. Also, you must have enough cash to pay this fraction of your debt.
Last Few Words on Debt Consolidation Options
Debt consolidation options are undoubtedly an effective way to deal with debt, but it comes with its fair share of risks. Before you consider consolidating your debt, make sure to evaluate your options, and make every decision carefully.
