By Charlie Brown

The average American household currently carries about $5000 in credit card debt at an average. Personal loans range around $10,000 per household. Miscellaneous expenses contribute to this debt amount, and this raises the average combined debt of each household of about $139,500. The average interest rate they are paying is above 13.70%. You could say in a way the rising level of household debt is enslaving the typical US families. A huge percentage of this debt comes from short-term loans, high-interest small loans and loan sharks, who take advantage of people in need of emergency cash. The Medicare costs and housing costs are to blame as well, but simply pushing blame is not enough. You need a way to get out of debt and stay out as well.

How can you make your debt consolidation effort work?

Getting out of debt is not a lightning fast process. It takes time, patience and perseverance on the part of the debtor. You need to remember a few points before you commit to clear your dues –

i. Debt management and debt consolidation work
ii. Each process comes with its benefits, disadvantages, and risks
iii. All of the processes take time. You must avoid relief providers that promise instant redressal.

How to choose the correct debt consolidation option?

First, you need to learn the difference between a debt consolidation program and a debt consolidation loan. The former does not offer financial help (a loan) to the participants. The latter offers a new loan that can help the borrower pay off several debts and save some for investments too. To find the best debt consolidation options for you, check out the details at

A debt consolidation program and a debt consolidation loan can help rid you of the annoying credit calls and payment updates. However, there are certain criteria your debt consolidation loan needs to meet to make the process successful –

i. Your new loan needs to bear a lower interest rate: a debt consolidation loan aims at providing more stable finance and lower monthly expenses to the borrower. While your current payments might come with variable interest rates, the new loan with come with a fixed interest that should be considerably lower than the total interest you are paying now.

ii. The new loan payments should be easier: debt across multiple revolving lines of credit is, of course, difficult to manage. Consolidation loan ensures that you have to pay just one amount to the new lender. However, that is not the only requirement. The new APR should be more amicable too. Do not settle for a higher cumulative interest for the convenience of a single payment.

iii. Improvement of your credit record: this should be the case of personal debt consolidation loans as well as business debt consolidation loans. Your new loan payments should be able to contribute to the increase of your credit score directly. You are going to use the lump sum from the consolidation loan to pay off all outstanding credit card debts, so an improvement of your credit score automatically becomes a prerequisite for qualification.

Why are debt management companies not as helpful?

Debt management is a complex process. The companies offering these services often market themselves as consolidation loan companies, and that is severely misleading. They can end up hurting your credit score worse than non-payment of dues and penalties. The debt management companies hold your payment amount in an escrow account till the credit card companies forgive the debt after the brief period of aggressive calling and collection attempts. Appointing a debt management company does indeed mean transferring the responsibility to marketing experts, but it also means signing up for a future where you become a delinquent for not paying your credit card bills for at least 180 days.

These companies do not make any attempt to settle your payments or negotiate with your lenders. They will simply hold the money till the creditors simply give up and accept the lower payment as a settlement. This impacts your FICO scores adversely and recovering to a decent score level can take up to months. The record of non-payment can stay on your report for over seven years, and these programs take several years to complete as well.

Debt consolidation loans will carry you out of bad debts 

A debt consolidation company takes all your outstanding small and medium debts and combines them. The new loan they assign can help you pay off these creditors indirectly, while you make a single payment to the debt consolidation loan company. Opting for debt consolidation loan makes life more bearable for people with multiple credit card debts as well.

As we have mentioned before, the average credit card interest rate usually sticks around 13.7%per household. In fact, series of defaulting events can raise the interest rates to above 30% percard as well. The consolidation loan interest rates can be as low as 6% to 8%, depending only your current credit record.

A word of caution for all debt consolidation loan aspirants

The prospect of availing a debt consolidation loan should not make you rejoice just yet. This debt relief strategy comes with its risks. The biggest of all risks is finding newly available credit. The new credit often tempts the consolidation loan holders to spend recklessly once again and come right back to square one. Borrowing money is not a way to get rid of debt; it is just pushing your problems to tomorrow. So, unless you plan to make any changes to your expenses or monthly sending habits, you will find it impossible to climb out of the debt hole.

A consolidation is a powerful tool for those in control of their finances or at least ready to take charge of their spending traits. A debt consolidation loan is an excellent chance to fight your way back to affluence, but just getting a new loan and hoping for a miracle, is not going to help you out.

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