How Debt Consolidation Works
Paying off debt can be an extremely frustrating process. Have you ever lost track of which bills are due when, and been hit with late fees on top of the interest? When you're working on paying off multiple, high-interest debts, it can feel like a never-ending process.
Before you give up and keep paying the high-interest rates forever as you chip away at the debt, there are other options you should consider.
One of those options you might consider is finding a way to consolidate your debt.
Have you wondered how debt consolidation works? We'll break it down for you.
Why Should You Consider Debt Consolidation
When you're unsure how debt consolidation works, it is natural to be skeptical of a one-size-fits-all answer. The truth is, each debt consolidation is a little different.
One of the pros of debt consolidation is a boost to your credit score. Your credit score is one of the factors in determining your creditworthiness.
For example, carrying a debt of 30% or less on your credit line on a credit card may help your credit score if you can make payments on time every month. Using more than 50% of your credit line on a credit card may start to hurt your credit score.
Other things that may hurt your credit score are late payments on bills and carrying multiple loans with high-interest rates.
Pay Just One Bill
Consolidating debt is just that: taking out one loan that pays off the other multiple loans that you have already acquired. This way, you are only earning interest on one, lump sum, and you only pay one bill a month toward that debt.
Credit cards, car loans, mortgages, bills in collections, and other kinds of personal loans can be a heavy burden to keep track of. In addition to that, each of these types of loans or bills carry their own set of late fees and interest rates to consider the longer they take to pay off.
Having the ability to only pay one bill a month towards your loans means that you are less likely to miss it. Your attention, and finances, can be focused on one bill to work away at.
How It Works
Still, wondering how debt consolidation works?
Debt consolidation can take the form of a personal loan, an extended line of credit, a resolution to the debt or even a mortgage refinance.
Using a bank or service that can analyze your specific situation and debt sources, can help you find the best solution. For example, here's a bit about Debthunch. Debthunch is one of those services that can quickly assess your situation and begin finding a solution to help boost your credit score and get you out from underneath the debt you have weighing you down.
Do You Understand How Debt Consolidation Works?
Understanding how debt consolidation works is the first step to utilizing it as a tool to free yourself from your debt.
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