To find out the answer to the question raised above, let’s consider how debt consolidation actually works and which of its features can help cash-strapped consumers, like you, attain relief from their credit card debts.
Debt Consolidation Basics for Young Credit Consumers
As its name implies, this credit-busting program enables consumers to consolidate or merge their existing loans and credit card balances in a low interest credit program. This way, it will be much easier for borrowers and credit cardholders, like you, to settle their financial obligations, without worrying that their interest charges might balloon out and soon get way out of hand.
There are two basic types of debt consolidation. The first one involves transferring your outstanding charges to a credit card that carries a zero- or a low annual percentage rate or APR. What’s great about this option is that you can lock-in just one rate of interest on your credit card account. So, instead of making substantial payments on interest, you can actually save a great deal of cash on such charges and use it in increasing the payments you will eventually submit to your new card issuer.
The second type of this debt-busting method is the debt consolidation loan. To qualify for it, most credit agencies will require you to offer collateral or security that will help guarantee the repayment of the funds you wish to take out. You can pledge your home, your car, your business shares, and other valuable assets against your consolidation loan. That way, you can receive a huge sum of cash you can use for settling your credit card charges, and even your loans, once and for all.
In return, you will have the responsibility to pay back, not just the principal amount you borrowed, but also a minimal interest charge, on installment basis – usually within the next two to four years, or if you like, over the course of 30 years.
Now, what are some of the advantages associated with this program? Let’s find out.
3 Benefits of Debt Consolidation
- No need to deal with multiple creditors. Yes, a debt consolidation program can help relieve you of the stress and pressure of dealing with several lenders and credit card firms, at the same time. This way, you can focus your energies towards paying off your debt, without worrying about the hassle of working with various creditors, who might resort to threats and intimidation just so they can collect payments from you.
- You can enjoy a much lower rate of interest than what was once charged on your old credit accounts. After all, debt consolidation loans as well as zero- or low-interest balance transfer credit cards tend to come with the most affordable rates of interest that consumers, like you, can actually find in the market. And as was mentioned above, such credit programs can help you save a great deal of cash on your interest payments.
- It can help you rebuild your credit history. Did you know that debt consolidation is one of the best strategies you can use to gradually rebuild your credit profile? In fact, as long as you will keep up with your repayment schedule; you can actually cause dramatic improvements to your credit history until you can eventually regain your creditworthiness.
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