What Are The Kinds of Debts You Can Consolidate?
At the moment, US is facing over $18 trillion in debt, it is
indeed a serious issue for the nation. As per valuepenguin.com, the average
household debt of an American is around $5,785.
Total outstanding US consumer
debt is whopping $3.5 trillion and total revolving debt is $929 billion.
Over 39% of all households have some form of credit card debt.
As per the data of Survey of Consumer Finances by the U.S. Federal Reserve, the average credit card debt of US households is $16,050.
During this survey, significant differences were also noticed as per different
age, gender, region, and gender. According to TransUnion, Alaska has the
maximum number of residents under credit card debt and Colorado is in the second
Individuals between the age group of 45 and 54 years of age have the highest debt i.e. $9,098. Calculating as per the gender, men carry more credit card debt – $7,408 as compared to their female counterparts – $5,250.
Above paragraphs only dealt with the problems but let us
shift our attention towards the solution, this is where ‘Debt Consolidation’
come into the picture.
Are you wondering what this is?
Here are some reasons why you might consider debt consolidation if you are in trouble with debt:
- It is a manageable solution for people who are bad with money
- It is a low interest form of debt
- It eliminates the potential to accumulate more debt
A manageable solution
Poor management of personal finance is one of the ways in which people get into debt. The only way to develop good financial management is through financial education. Unfortunately this is something which is rarely taught and is normally learned through hard experience. As a consumer it can be difficult to resist temptation and effectively budget to meet all your financial obligations. But you need to always remember your priorities, such as:
- Your mortgage
- Your utility bills
- Your phone bills
- Your loan payments
- Your credit cards
This is just a few of the many bills we have to pay each month. With
multiple debts and obligations it can become difficult managing your
finances. People can often get trapped in debt because of continuing
late payments or incorrect payments in case you haven't calculated your loan emi correctly or missing payments completely. These errors can result in
fines, fees, penalties and penalty interest. This makes the debt
situation more expensive and in the long run, even harder to manage.
It is a low interest form of debt
Many forms of debt have high interest and as a consequence can be expensive to service. The multiple debts you pay are probably subject to various interest rates all of which are high. Through debt consolidation you could convert that into a more favourable situation for you. It is possible to halve your interest liability by opting for a debt consolidation loan. Debt consolidation may also give you the flexibility to choose the terms of the loan to suit you.
Let us get to know more about this option that can surely offer debt relief.
What is Credit Card Debt Consolidation?
Using this method, you can easily integrate various unsecured
debts in one single new loan. With the help of this new loan, you can easily pay off more than $20,000 in credit card debt.
There are strong possibilities that this new loan may have a
lower interest rate, lower monthly payments or both. When you choose to
consolidate credit cards, you are on your way to get yourself out of the debt, whether
it is credit card debt, student loan or any other type of debt.
What are the norms used by the lenders
You should be aware of the fact that the lending requirements may differ from company to company, but there are some key factors that are usually adopted by the lenders. Here are some of the major ones –
Your financial stability also matters to the lender. This may comprise of your salary, employment history, and length of your employment, etc. You can be asked to produce your employment proof, rental history, and pay stubs.
Your creditors may be interested in seeing your credit history as well. This information is used by the lenders to analyze the gauge of your financial standing.
Some companies only choose to consolidate the minimum and a
maximum amount of debt.
For instance, an XYZ company will only consolidate a debt if the total sum is less than $1,600. Similarly, they might be a possibility that they won’t consolidate the debt if that goes above a certain amount.
If you are attempting to consolidate a loan that is too high or may be too low, your application won’t be considered for consolidation.
Lenders always want to see your credit score high. But, this
does not mean that your score needs to be perfect, but most of the lenders do
expect that you at least fulfill a certain credit threshold.
A credit threshold
can be defined as the range between a set of scores which are further used to
For instance, your credit score might be ranked as
Good, Average, or Excellent. Such ratings are then used by the lender to decide
your ability to repay.
Types of debts that can be consolidated
Here, we will discuss the consolidation of secured and unsecured debt.
When you are making efforts to make yourself debt-free, unsecured debt has more chances of getting consolidated as compared to the secured debt. The best thing about unsecured debt is that there is no collateral and commonly it comprises of medical bills, personal loans, and credit card debts. If you are delinquent in making payments, it will have a negative impact on your credit score.
When we talk about debt settlement and debt consolidation, they
both work smoothly with unsecured debt. Lenders closely look at your
collateral, conditions, character, capital, and capacity.
Following are some of the types of unsecured debt –
Credit Card Debt
This is one of the common forms of unsecured debt. Balances carry over and people can go on borrowing each month. You should be little cautious with this kind of debt as the interest rates can really pile up if you are not making payments on time.
You must have seen people taking up personal loans for
various reasons such as paying off your credit card debts, starting up a business, or going on
some vacation, etc.
The sanction of your loan and the interest rate mainly depend on the credit score. The best thing about the personal loans is that they have lower rates as compared to the credit cards; all that you need is a social security card and driver’s license.
Student Loan is one of the popular methods of consolidation. Student Loan Consolidation can really make it simple to pay off your student loans and with a lower interest rate as well.
If you have loads of medical bills, then choose medical bill consolidation as it will help you to make things easier and less complicated for you.
Collection Agency Debts
Using debt consolidation for paying off your collection agency debts can be a good option. Using this type of consolidation, you can even take care of your secured debts such as car loans.
You can consolidate secured debt as well. For this debt, you
can use the asset of your loan as ‘security’. The risk here is that you can
lose your asset if you fail to make the payments.
Two common types of debt
consolidation loans are – cash out refinancing and home equity loans.
are having a tough time making your payments, you can get in touch with your
creditors to work out a new repayment plan.
While it may be easier to have debt relief for unsecured debt, there are also options available if you are caught up with secured debt.
What are the Benefits of Debt Consolidation?
If you have made your mind to consolidate credit card debt, then you get to enjoy the following benefits –
· The chances of improving your credit score are more.
· You only have to take care of one payment instead of several.
· Debt Consolidation will help reduce your agony and stress over debts.
· You no longer have to deal with multiple creditors.
· With the help of debt consolidation, the interest rate assigned to your debts is on the lower side.
· You get to pay off your debt much faster.
debt consolidation, you actually save your credit score from being damaged.
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