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How Debt Consolidation Works

By: Kris Koonar

We all carry a lot of debt around with us if we live in the western world, and sometimes the load becomes almost unbearable, but there are ways in which you can limit your debt burden without paying through the nose to do so. In fact, anyone who doesn't, is a fool. This article is a short read on the subject of debt consolidation. Read the entire article and if you require more information then just visit the link at the bottom. Happy Reading!

Debt Consolidation is just plain good sense. What it means is, rather than holding debt in a variety of places - let's say two credit cards, an auto loan, a retail store charge account and a student loan - you take out one nice big loan that pays off everything, and pay one monthly interest rate.

Now, most people don't do this, and the reason why is simple - they're either lazy, or they don't know that such a thing exists. The reality is, any bank will gladly help you put together a debt consolidation loan, because:

a) You're transferring your debt to them (and they like that a lot)
b) You're showing real initiative in turning your finances around
c) You're not borrowing MORE money, you're just borrowing it from one place

The way it works is easy. Many kinds of credit incur a monthly minimum charge. For example, the interest on your credit card might be $50 per month, but the credit card company will insist on you paying a percentage of what you owe in total, not just the interest. So your credit card payment for the month will be $150 or more.

Now, if you have two credit cards, that amount just doubled. Now add the late fee for any time you're short that month can make a late payment ($20), another $25 if you go over your spending limit, and then all those other accounts on top (student loan, retail store, car loan), and you're paying hundreds of dollars to several entities.

But if you consolidate all those loans into one single debt to one single company, you pay just one simple fee. And instead of the 19%-39% that credit card and loan companies charge, you're dealing with a manageable rate, and a timeframe that will eventually see you completely debt-free.

Isn't it time you took that first step with your financial future?

We all, over the course of our lives, sometimes rely on credit to get by. Whether it is for a mortgage on our home, a loan for a car, or a payday loan to get by until next Friday, there's little we can do to escape the effect of a debtors society. But the way you handle your debt is something you can have a say in, and indeed the way you do so could mean you save - or spend - thousands of dollars a year.

Let's imagine you have a few credit cards on the go. One of them, the card you had since you were in college, has a few grand racked up on it, and because you missed a few payments way back when, the interest rate is at 19%. Ouch. Well this happens to the best of us and according to the statistics most of us.

But most of us never look at the interest rate we're paying, because, quite frankly, we don't give it a second thought. MasterCard says we owe them $184 this month, so we pay $184. This is simply the worst thing you can do for you financial future.

But it doesn't have to be that way. Many credit card companies will give you a card, albeit with high interest after a period of time, that for the first 6 months to a year comes with 0% interest on all credit card transfers. What this means is, if you use your new card to pay a big chunk of your old card, you pay no interest on the new card for a set period of time.

Now, of course once that time is up, they'll put you right back on the expensive interest rate, but for a short time, the money you pay on your credit card is ALL-principal.

Credit card companies don't like you doing this too much - in fact, they'll put it on your credit card report if you do it more than a couple of times - but if you're looking to get out of a short term financial logjam, look for those introductory offers and use a new card to pay off your old card.

Oh, and when you do - shut the old card down!

Article Source: http://articleblender.com

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