When you have debt, it can be difficult to know where to begin when paying it off. One of the ways to get beyond that is to use a technique known as debt consolidation to make your debt more manageable – and even to save you money over the long run.
Two Ways to Consolidate Debt
There are two main ways to consolidate debt. The first is to use a larger loan to pay off the smaller loans that you have. This works when you engage in a balance transfer with credit cards, or when you get a home equity loan to pay off what you owe in other debts.
You have to be careful with this type of debt consolidation, though. When you use a loan to consolidate your debt you run the risk of getting in deeper debt. If you “free up” your debt with a consolidation loan, there is a good chance that you will just use that debt again – resulting in bigger bills.
If you go this route you need to be careful. You can save money with a lower overall interest rate, and by paying off your debt faster, but you have to make sure you don’t build up more debt in the process.
The other way to consolidate your debt is to use a debt consolidation company, like Consolidated Credit. These companies help negotiate a lower interest rate with your creditors, and they also help you put together a plan to repay your debt on a schedule. Even if you pay a fee for the help, you can often save money in interest charges, and get out of debt faster (as long as you stick to the plan you’ve been given).
How Debt Consolidation Helps
When you use debt consolidation, you make your debt more manageable. You only make one payment, instead of needing to keep track of multiple payments. Additionally, it also often means a lower interest rate, which means that more of your payment goes toward reducing the principal, rather than toward interest payments. This speeds up your debt repayment.
Many people find that they can pay of their debt in three to five years – rather than taking twice as long – when they engage in smart debt consolidation. Being out of debt faster can help you get on the right track with your finances, and put you in a position to start using your financial resources to your own benefit, rather than to enrich others. Before you can really start to build wealth, you really need to pay off
As long as you are disciplined and committed, and careful to change the habits that got you into debt in the first place, debt consolidation can be one way to accelerate your debt repayment and save you money over time. It makes managing your debt a little easier. Make a plan to pay off your debt, and avoid falling back into the debt trap, and consider using debt consolidation to help you in your goal.
This was a guest post from Consolidated Credit.