Finding Out The Money Saving Ability Of Debt Consolidation
Most people take on debt consolidation as an option to get rid of their debts because they think that they will save a lot of money this way. Well, most of the times it does but that is not due to the features of this tool alone but it is also largely dependent on your behavior.
Debt consolidation is ideally a tool that will reduce your debt stress making it much more manageable but in no way it will reduce the actual outstanding debt amount that you have currently. Therefore, how do you save money? Well, to understand that you will need to delve deep into it.
- If you go by the definition of debt consolidation itself then you will see that its primary focus in not on saving you money much as it is on reducing your number of debts that you currently have against your name.
- That means if you go through the process of debt consolidation it involves turning five debts into one single debt and this certainly does not reduce the amount that you have to pay.
With that said you need not feel disheartened. When you choose debt consolidation as an option for your debt relief and choose some of the best debt consolidation loans, you will surely end up saving a lot of money both now as well as in the years to come down the road.
Save money from different sources
Ideally, a debt consolidation loan comes with a low rate of interest but provides you with the desired amount of money to pay off all your loans. Since it also comes with larger loan tenure and better loan terms you end up:
- Paying off your existing debts at once
- Carry on with one single debt now
- Get out of is faster for its favorable terms and
- Pay less money in turn due to its low interest than you would have otherwise.
That means you will save money from different sources when you take out a debt consolidation loan that includes lower interest rates and monthly payments apart from a radically reduced debt load overall. No wonder sites like NationaldebtRelief.com seconds for debt consolidation option instead of debt settlement or bankruptcy.
Different variations of debt consolidation
However, there is something that you should know at this point. It largely depends on the type of loan you have taken out when it comes to determine how these savings are going to happen.
There are quite a few variations of debt consolidation and all will have a different level of ability to save you money considering the best-case scenarios.
Debt consolidation is rather a wide umbrella that involves a few methods that are more popular than the others and it all depends on the amount of money saved by these specific forms of it. These different forms are:
- Balance transfer credit cards
- Unsecured personal loans
- Debt management and
- Debt settlement.
All of these options will have different features which will eventually determine how much money you end up saving.
- With balance transfer credit cards option you choose a new card that has preferably a 0% introductory interest rate and a high potential spending maxim. This will limit or eliminate the amount of accruing interest when you use these cards thereby saving you a lot of money. The rate of interest on credit card debts can range anywhere from 18 to 36%! Therefore, you save a quite a lot of money if you repay the balance within the introductory period. However, make sure that you do not use the card actually as well as other cards to ensure that you save quite a lot of money.
- If you take out unsecured or even a secured personal loan on the other hand to consolidate your debts, which ideally is the most common process you save a lot of money due to the much lower rate of interest that it carries. This lower rate will reduce the total amount of money you end up paying for this loan over time. In several cases, it may also reduce the total amount you pay to your creditors each month. That means though a single loan payment may be much higher than one single credit card payment, when you combine several credit card debts into one personal loan, you will save a lot of money each month apart from get out of your debts much faster paying less.
- Debt management on the other hand means working with a credit counseling company. They will help you to manage your outstanding debts no matter how overwhelming or unmanageable the amounts of debts may seem to you. Though not always, most of the times these companies are non-profit organizations. This means you save on the fees of hiring such professional and expert service. Their programs come in two parts: providing simple financial education and enforcing financial discipline. You will make a single monthly payment to them which they will distribute to your creditors, which is where you save your money once again. They are adept in negotiating with your creditors to win concessions in the form of reduced interest rates or reduced overall debt even.
- Last but not least, debt settlement is another option that will save you a lot of money. This option is much similar to debt management plan but in here you pay the third-party company every month a set amount instead of your various creditors. They will negotiate with your creditors for a reduced amount essentially consolidating all your debt at the same time. It is much more aggressive and therefore comes with much more savings than debt management plan.
Which option you will choose to save money the most will depend on your choice and preference and also on your financial affordability. However, using a debt calculator to crunch the numbers will help you to make the right choice. This is a simple tool to use with a built-in formula that will do the calculation for you. All you have to do in punch in the numbers.