Before you answer that, let us discuss why you need it in the first place.
Well, reports reveal that the debt of Americans is still quite high. It would have been okay if consumers can pay it off. But the truth is, they cannot. According to one survey, 1 out of 4 Americans fails to pay their bills on time. Not only that, 8% have debts in collection.
All of these data reveal that we probably never really recovered from the last recession. We are still deep in debt. If the reports are true that we are headed into another recession in the near future, then a lot of us are in trouble. With a high amount of debt, you might end up giving it enough leverage to completely destroy your financial security and stability.
This is the reason why you need to seriously consider how you can get out of debt completely. As much as possible, you should aim to get rid of it before the recession really hits us bad.
Fortunately for you, there are a couple of options for you to do this. Two of your options are credit counseling and debt consolidation loan.
What are debt consolidation and credit counseling?
The challenge of getting out of debt is finding the right debt solution that you can use. If you want to improve your financial future, you need to choose the right program that will do more than just pay off your debts. It should also help set you up to make your other financial goals easier to achieve.
Your choice will also depend on your current financial position. To be specific, you need to determine how much you can afford to pay.
Once you have thought about that, it is time to get to know what debt consolidation loan and credit counseling are all about.
Debt consolidation loan
This debt solution involves borrowing a loan that you will specifically use to pay off your multiple credit accounts. This is an opportunity for you to restructure your debts and get a lower interest. If you want to lower your monthly payments, you can simply get a loan with a longer repayment plan. But if you want to get out of debt faster, you can opt for a shorter repayment period. The latter will help you save a lot of money – specifically on the interest rate. And if the loan you got has a really low rate than your original debts, you will save even more money.
When you are approved to get a debt consolidation loan, it will be used to pay off your multiple debts in full. Take note that you also have the option to borrow a personal loan. This is a type of loan that you can also use on something else – not just for debt consolidation purposes.
Before you opt for debt consolidation loans, make sure your original debts do not have prepayment penalties. Otherwise, you might get charges that you could have avoided.
After using the loan to pay off your debts, do not think that it is over. You are not yet debt free. You still have to pay off your debt consolidation loan. The difference now is that you have a single monthly payment. That should be easier for you to meet all your payments since monitoring will not require too much effort.
On the other hand, credit counseling involves a debt professional who will discuss your debt and financial situation. The conversation will revolve around how you can best pay off everything that you owe. They need to know your specific debts and how much you are earning (or at least how much you can afford in terms of debt payments). You have to give them an honest account of what you owe and your finances so they can give you the best advice about your debt relief options.
Some of these options may include debt management, budgeting, debt settlement, debt consolidation, or even bankruptcy. This particular expertise may or may not cost you. There are non-profit organizations that will not charge you. But there are those who will charge you and will include debt management services – if you opt to use it as a debt solution.
When is debt consolidation loan better?
Now that you know the basic idea about the two, let us discuss how debt consolidation loan is better.
According to reports, 35% of approved loan applications are used for debt. This is the highest percentage among the other reasons for borrowing a loan. It won over reasons like household expenses (19%), medical (9.9%), life event (8.5%), etc.
As you can see, a lot of people recognize the potential of using a loan to get out of debt. But the question remains – is it the best option for you to get out of debt?
Here are the signs that a debt consolidation loan is the best strategy to get out of debt.
You have a good credit score
In order to get approval for a low-interest loan, you need a good credit score. This will prove that you are responsible with your credit accounts. The lender will not feel the need to protect themselves from the chance that you will not pay them back. They usually do this by giving a high-interest rate on the loan. With a low-interest loan, you can save money on the overall debt that you will pay off.
You do not need professional help
There are people who do not need debt consolidation help but there are others who prefer having it to make their lives less stressful. Sometimes, people can afford to pay off their debts. But they just tend to make the wrong financial decision because they do not understand their options. Or maybe, they are too busy to really get to know the options they can use. Sometimes, the stress just gets to them. That can be a problem that debt experts can use. But if you do not have issues with dealing with your own debt, then there is no need to get a debt expert to help you.
You just want to simplify your debts
Consolidating through debt consolidation loan is the best way to do this. You will put all your debts under one loan – that can simplify your monthly payments. You do not have to keep track of all the due dates and minimum payments. There is no need to exert a lot of effort on the monitoring. Instead, you can focus on earning more money so you can improve your financial position.