The Goal of Debt Consolidation


When we hear the phrase ?debt consolidation? we know it refers to a plan for gathering outstanding debts into a single loan or credit account with a lower overall interest rate. The thing about that is that the actual goal of a consolidation is not just to gather everything together, but to actually eliminate it as quickly as possible. Many consumers fall into the trap of rolling debts into one loan or account and then making only ?minimum due? payments for many years. This racks up enormous sums in interest fees and is not all that efficient.
A better way to approach debt consolidation is to look at in terms of erasing debts altogether and in as quick and efficient a manner as possible. For example, if a consumer has balances on five separate credit accounts, with some averaging around $200 and some over $1,000, they could roll all of the balances into one and begin making payments, or they could take the two smallest balances and eliminate them first.

This could be easily and quickly done through a payday loan or cash advance. Such a loan would offer a lower interest rate and a fixed repayment period. This means that instead of bunching all of the debts together and paying on them for an indefinite period, the borrower could pay off two, repay the payday loan in a matter of weeks and then tackle the next one or two debts. They could continue to do this until all of the debts are gone.

Is this a faster way of doing debt consolidation than any other plan? The answer to that question varies from person to person. Some consumers can commit the funds and effort into paying off a debt consolidation account in a matter of months, while others let it continually roll over from year to year without much worry. The key to successfully tackling the debt is to have a firm plan, and this is the reason most people who want to see their debt burden dramatically reduced will opt for a cash advance or payday loan.

How do you get such a loan or advance? Someone who wants to do a debt consolidation will first have to gather together all of their credit card bills and identify which are carrying the highest rates of interest. It is usually these accounts which should be eliminated first.

The borrower must then work out a budget plan to ensure that they select the best repayment period for their income. For example, if a person has two credit accounts at 29% interest and with balances of $250 each, they will need to borrow $500 to pay off the accounts. They will then need to look at their budget to see how many weeks it will take for them to comfortably repay the loan. If they select a ten week repayment period, they will have taken care of the debt in just over two months.

They can then adjust their debt consolidation schedule, look at their bills again and see which other of their credit accounts can be handled in such a way. Using this approach will often reduce debts in months rather than years because it commits the borrower to their repayment plan and doesn?t allow them to slack off on their debt consolidation and elimination efforts in any way at all. Of course the great thing about most payday loan and cash advance companies is the fact that they will permit their clients to negotiate new terms if their current income does not allow them to make the payments initially selected. For instance, if the person who opted to repay a $500 loan in ten weeks suddenly determines after a few weeks that it is going to require around fifteen weeks instead, they can contact the lender and make new arrangements. There are no banks or credit companies that allow such alterations to initial plans.

One thing that most people don?t realize is the effect of following a debt consolidation plan through to the end. Once a credit account is paid in full it is vitally important for the account holder to leave it open and unused. Closing credit accounts that have been paid in full actually lowers the credit score.

This happens because the credit score is created from a variety of figures, but one happens to be the ratio of debt to the amount of debt in use. For instance, a consumer with three credit accounts could have a total of three thousand dollars available for their use. If they have high balances on each account, they can pay these off in turn and increase their credit score. If, however, they pay off the first and then close the account, they will have less credit available and still have a great deal in use. This is the reason that a debt consolidation must include paying off accounts, but also leaving them active.