When you have a significant amount of debt, the bills can really start to pile up. You might be paying four, five or six different bills on any given month, and the interest rates and fees are starting to become a real issue. Debt is a problem that millions of people face every single day. Things like old student loans and credit cards can all accumulate to where you owe a significant amount of money and don’t know where to turn to make the bills end.
What Can Cause Debt?
Many different things can cause debt over a period of time. A new car or home is considered a type of debt, but factors like student loans and credit cards are often the most troubling. When you take out a student loan, it needs to be paid back upon graduation of school. If you fail to pay the loan back in a timely manner, you’ll be hit with late fees, rate increases and a hit to your credit score. Credit cards, on the other hand, are the most common perpetrator of debt for most individuals. These cards often have high-interest rates and relatively vast spending limits, so you may begin to rack up debt without even realizing how bad it’s getting.
What Exactly is Consolidation?
Consolidation is a process of taking multiple accounts and bills to lump them together onto a new, separate account. Typically, this involves taking out a personal loan of some kind and ensuring that the amount of the loan is enough to pay back all of those past bills. Once you consolidate your debt, you’ll be left with just one loan payment at the end of the month that is more affordable and has a lower interest rate. In turn, you’re able to eliminate frustrating and confusing debt while simplifying your finances.
How Does it Work for You?
If you have old student loans or credit cards, consolidation might be the right option for you. The key here is to find a new loan with a low rate and that will provide you with enough money to pay off all other balances. You’ll need to make out an application, either online or in-person, and you’ll be approved in a short period of time. The money is then sent to you directly so that it can be used to pay off balances that you currently owe.
What to Expect Long-Term
Consolidation is a relatively streamlined process that involves applying, approval and payments. Once you’re approved for the new account, you’ll be responsible for making payments on it every month. The amount you will pay depends on how much of a loan you took out in comparison to its interest rate. This is why it’s a smart idea to be aware of interest rates whenever consolidating your past debts. The interest rate will determine how much is put towards the principal of the balance and what goes to the lender. These accounts can be taken out for three, five, seven or more years depending on your specific budgeting needs.