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Debt Consolidation is One of the Best Ways of Managing Debts

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When loans start staring at you, and you feel extreme discomfort to live with it as managing loans become too much stressful, it is time to think about reducing your anxiety and pain. An easy solution would be to pay back loans so that you are free from financial liabilities once and for all, but this is just wishful thinking and would only compound your problems. For a decent living, you must depend on loans much in the way businesses take loans in its stride as it is the staple method for financing businesses. Learning the tricks of managing loans that have become a part of our lives is the only way to survive.

The first lesson is to keep debts under control by borrowing only as much you can repay. Again, this might sound good but hard to practice because, in today’s scenario, our wants are outnumbering the needs so heavily that it is hard to stay away from greed which leads to successive borrowings often without realizing the consequences. We want to acquire everything that catches our fancy, and since the availability of funds is not a problem anymore as you can use credit cards or take personal loans anytime, it is hard to keep control on spending. Overspending has become a way of life as you can understand from the statistics that point to the fact that 80% of Americans have debts running over their heads.

Considering the society that we live in and the influence of plastic money on a modern lifestyle that has drastically changed our spending habits, it will be foolish to aim for a debt-free life. Add to this the easy availability of loans that come in handy in situations when you exhaust your credit limit and yet crave to buy something just now. Whatever you want is now within your reach, and you must just make a wish to fulfill it as money should never be a problem. It is therefore not surprising to see most people borrow more than their abilities and then struggling to stay afloat by making timely payments for all loans that they have. You will often see people juggling with bills and desperately trying to figure out the best ways of managing debts without knowing what could be good for them.

Beware of Minimum Monthly Payments

The biggest mistake that borrowers make is to try to stick to the payment dates by making minimum monthly payments. Assuming that missed payment can do more harm by affecting credit scores negatively, they keep making minimum payments to avoid penalties and being defaulters, but this creates some bigger problems for them as they step into the vicious debt trap, often unknowingly. The outstanding debt together with interest becomes too large to handle, and with time it becomes impossible to bring down the debt that keeps galloping. The situation can soon go out of control and leave you helpless as you are at your wit’s end to figure out how to come out from the debt-trap. Suddenly, you find yourself in a situation when the manageable monthly payments turn into unmanageable debt.

Borrowing Too Much

Borrowing is not bad if done with restraint. But unfortunately, most people lack the will and start borrowing recklessly. Using too many credit cards is one of the reasons for uncontrolled borrowing, and it becomes difficult to continue with too many loan accounts with varied interest rates and payment dates. Also, the uncertainties of life often throw financial challenges that necessitate fresh borrowings to overcome the situation. Besides credit card loans, people borrow from other sources too and even avail credit lines allowed by banks. When people start using all resources for garnering funds without proper planning and considering one’s financial position, it becomes a recipe for financial disaster. In no time, people find themselves drowned in debts with no solutions in sight. Interestingly, since all borrowings are in the form of unsecured loans, people do not think twice before indulging in more and more debts.

Possible Solutions

When faced with too many debts, it often becomes a challenging task for borrowers to work out ways to reduce the burden of loans. Indeed there are quite a few options to tackle the problem effectively. From debt settlement to debt consolidation and from a debt management plan to file for bankruptcy there are many ways of debt relief.

  • Debt Settlement: The method involves negotiating with lenders or creditors by explaining the financial hardships that you are undergoing and convincing them to accept lower monthly payment or settle the outstanding amount by accepting reduced payback. While creditors remain assured of payment and even acknowledge your good intention of making the payment, they would be reluctant to receive less payment than what you actually owe them. It requires some tough negotiations and a good amount of convincing to make things work in your favor. This technique may not work with credit card companies as they have no obligation to accede to your request, but many lenders would agree to your proposal depending on how you present your case and how much you owe them. Since it entails tough negotiation that requires professional expertise to deal with lenders, seeking the services of professional debt settlement companies would do a lot of good for you.
  • Debt Consolidation: When you are reeling under the stress of several debts and managing several lenders is your biggest headache then you can seek relief by consolidating the debts and converting it into one large debt. Debt consolidation companies like Nationaldebtrelief.com has helped numerous borrowers to seek debt relief through loan consolidation. One fresh and large debt that you take helps to payback all the existing debts thus leaving you to deal with one lender only. The arrangement addresses the root cause of the problem, and you continue with the loan without the difficulties of managing multiple lenders. Life becomes so easy that you would regret why you had not taken the step earlier.
  • Debt Management Plan: Borrowers who can make consistent payment on time can approach a not-for-profit credit counseling agency to help develop and maintain a debt management plan for them. The process involves a financial counselor who figures out your total debts and then negotiates with creditors for lower payment and fees with the assurance of timely payments by setting up a realistic budget for you. The debt management organization takes the responsibility of making monthly payments on your behalf by using the money you deposit into an account opened for the specific purpose. However, the success of the arrangement rests on the sincerity of borrowers because missing out on a single payment could make you lose all the advantage of lower interest negotiated earlier and even increase your burden by charging additional fees.
  • Bankruptcy: Normally, filing for bankruptcy is the last resort for borrowers when they have exhausted all other means of debt relief. It is a very tough decision of your life that can have far-reaching effects on your financial future and you must consult some expert credit counselor to weigh the pros and cons by studying your case in details. Bankruptcy would reset your credit rating, and you must start from scratch to build your credit score once again which can be an arduous task. To file for bankruptcy, you must have sufficient assets of the right type to use for settling debts. For example, you cannot use your 401(k) plans, and retirement accounts for debt settlement. Moreover, you cannot discharge some debts like student loans, child support, alimony, taxes, and restitution arising from criminal cases by taking the bankruptcy route.

Debt Consolidation Has Added Benefits

Although all the above methods help to alleviate debt, debt consolidation is a notch above the rest because it offers added benefit that no other arrangements can offer. Besides providing debt relief, the most notable gain from debt consolidation is that it helps to improve your credit score and reorganize your finances. When you are availing a new loan, you can negotiate with the lender for a lower interest rate than what you pay currently on an average. The interest might not be the lowest as compared to all other interests, but overall, it would lower your monthly payments. This is a very big gain because the money you save can help to restructure your finances.

Get The Right Deal

While getting the best interest must be the goal when availing debt consolidation loan you must also be mindful about the terms of payment that should not be so long that you end up paying more and it offsets the gain you made by obtaining lower interest. Moreover, there might be upfront fees or some short terms that could dilute the advantage you derive from the deal.

Consult a debt consolidation company to work out a debt consolidation plan for you and then help you to find a lender that offers a loan on favorable terms. Read the fine print carefully and take a well-informed decision so that you can continue with debts by avoiding the pitfalls.

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