If you have accumulated a considerable amount of debt that you are not able to keep up with, your best option is to consolidate your debt before you decide to consider drastic options like going into bankruptcy. Debt consolidation is a great option for consumers with a regular income and a lot of high-interest, high-penalty debts. Knowing how debt consolidation works can help make things easy for you when you want to get rid of your bad debt.
Keep reading to learn how to consolidate debt and get rid of those bad debts that have been causing you sleepless nights. Below are the three steps for consolidating debts:
Step #1: Sum Up Your Bad Debts
The first thing you’ll need to do when you want to consolidate your debt is to add up all the different types of bad debt that you may have. Basically, anything that comes with above market interest and punitive late payment penalties should be added to your list. In fact, you can add up everything else aside from your home loan and student loan debt. After adding up your bad debt, you will know exactly how much to apply for in terms of a debt consolidation loan.
Ste #2: Choose the Right Debt Consolidation Loan
Through debt consolidation, you will be paying off multiple bad debts with different payment schedules with one large loan known as a debt consolidation loan. This is basically a low-interest loan with a long repayment period. By paying off your bad debts with this long term credit facility, you will get several benefits. For starters, you will reduce your monthly payments. Secondly, you will save money by avoiding high interest payments and unreasonably high late payment penalties. Thirdly, your life will be much easier as you will only need to pay one monthly installment every month on a specific date as opposed to paying several loans on different dates. This will boost your chances of successfully paying off the debt consolidation loan.
Step #3: Pay Your Bad Debts and Update Credit Report
Once you have found the right loan, be sure to pay off every single debt on your list. You should be left with nothing from the debt consolidation loan. After settling those debts, be sure to get in touch with credit referencing bureaus to have the statuses of these debts updated. Be sure to also service your new loan in a timely manner.
There are many professionals who can help you with this. Be sure to consult nonprofits and charities that have specialized in helping consumers in financial distress.