If there is one situation that a lot of people would rather not deal with, it is none other than having to face mounting debt. Even if you consider yourself a good money manager, even just one bad or wrong decision might create a domino effect on your finances. As a result, you might have different credit card accounts with varying due dates and interest rates. Such differences in due dates could make you forget to make a payment on one account, which would in turn increase the penalties or late fees that you’d have to pay. Once you find yourself dealing with more debt than what you can handle, it might be time to get some professional help in the form of cheap debt consolidation options.
Options For Cheap Debt Consolidation
Depending on how grave the situation is, there are several cheap debt consolidation options that you can go for. Here is a list of what these options are, as well as the pros and cons to help you decide whether it is a suitable choice for you or not:
Debt Consolidation Loans
As the name implies, debt consolidation is the process of consolidating your various debts into one debt so that you only have one company to pay. Credit card companies sometimes offer this option, and there are two possible ways to do it. First, a specialist lender can give you the money to pay off all your loans taken from different places. You will end up having just one loan with one lender, making it easier for you to manage your finances and pay off the debt.
Alternatively, the credit card company may choose to pay off your several loans using their own funds which will not be given to you any more. As they negotiate with your several lenders, you will also end up owing just one debt to one credit card company. Either way, you are likely to pay back much more in the long run, so do not go down this route without careful thought and a clear understanding of how much you will be repaying by the time the loan ends.
Additionally, there are credit card consolidation loans which are of the secured and unsecured type. With a secured loan, you need to put up a property as collateral so you are in danger of losing it if you are unable to pay off the loan. With unsecured debt consolidation loans, there is no collateral required, but the interest rates are usually higher.
Debt Management Plans
Now, how about debt management plans? Is this a cheap debt consolidation option? Remember that for this, you will not be taking out a loan to pay the different credit card companies whom you owe money to, which is a good start. Instead, you will be using a debt management company who will allocate you a financial expert to assess your individual situation. Once it is calculated how much you can pay off each month for all your outstanding debts, the debt management representative will negotiate with all your lenders. A lower monthly payment and lower interest rates will be arranged. In essence, you will also be left with just one outstanding loan to pay. Although there is a lower monthly payment involved, there is also a lower interest rate.
Keep in mind, however, that you will be paying more in interest the longer that the plan goes on for, so have the financial expert create that delicate balance between a low interest rate but a not too long payment period.
Choosing Which Option to Go for
Now that you already have an idea about the cheap debt consolidation options available, how can you choose which one is more applicable in your situation? It actually depends on the number of lenders that you have and how much you owe in interest. If you feel that a credit card consolidation loan is not something that you can manage to get you out of your current debts, then a debt management plan may be more suited for you.
At the end of the day, it is all about weighing the pros and cons of applying for a loan or hiring the services of a debt management company. In most cases, debt management plans offer a more personalized approach to relieving you of your financial burdens because all aspects of your finances will be assessed. Still, it pays to consider both options and study the pros and cons of each so that you can make an informed decision.