Nowadays, people all over the world and especially in the U.S. are experiencing severe difficulty with different types of debt. And so, every day there are people who are trying to find a way to pay off what they owe to their creditors as fast and efficient as possible so that they can once again have control over their financial life. However, such goal is not at all easy to achieve.
Why is getting out of debt so hard?
Getting out of such financial obligations is hard for many reasons. First of all, if a person is in a good financial state, that person would probably not go into debt in the first place. That means that if you are carrying a number of debts, you were most likely in a bad financial state, to begin with. And carrying multiple financial obligations can only make things worse. So how can people manage to repay the money that they owe while also having to pay all their regular expenses? If it is a single debt that you are dealing with, then you would probably be able to get rid of that financial obligation all on your own. However, when people are dealing with a number of different financial obligations, the only way to get on top of the situation often is to seek assistance.
How can you get rid of multiple financial obligations?
The truth is that there are many different ways that people can improve their chances of paying off the money that they owe to their creditors. Basically, it all comes down to the specifics of the financial situation that you are currently in. The better understanding that you have of your own financial situation, the better your chances of regaining your financial control are going to be. You need to review every aspect of your financial situation so that you are able to find the best solution to your problems. And the best solution is going to be different for everybody, simply because every person’s financial situation is different and unique. In case you are struggling with more than a single financial obligation, probably your best option for paying off all that you owe is going to be to consolidate your multiple debts with a debt management plan, which is a type of debt consolidation. So we are going to start from here.
What is debt consolidation?
Debt consolidation is a financial method for combining multiple financial obligation bills into a single monthly payment. Debt consolidation is normally the go-to method for dealing with such financial trouble for many people who are going through such difficulties as it offers several major benefits that are hard to be ignored. Here is what consolidating your multiple debts can usually get you:
A lower interest rate
By consolidating your loans, you are typically able to get a lower interest rate on your new monthly payment which is one of the biggest benefits that you could ask for in such situation. Every person who is struggling with debt or has faced such financial issue in the past is well aware of how crucial the interest rate is. Being able to lower the interest that you are paying on your loans could have a massive positive impact on your repayment process and your overall chances of reaching your goal of financial freedom.
A reduced monthly payment
The benefits of consolidating your multiple financial obligations do not end with getting a lower interest rate. By using a debt consolidation, you would be able to reduce your monthly payment which will naturally free up some space in your budget and leave you with extra cash that you can use to manage all of your other bills.
We have already mentioned that the foundation of the debt consolidation is to combine many bills into one, and this is always going to be one of the main benefits that the service has to offer. What is so good about having just a single payment? Well, if you think about how much time and energy it actually takes you to keep track of all of your debt repayments, you will quickly realize that having just a single monthly payments could make your life a whole lot easier. It will also minimize any chances of late payment fees as you would be able to focus only on that single payment, making it pretty hard for you to miss one.
What is the best way to consolidate debt?
It is hard to say which debt consolidation type is the best one. It all depends on the specifics of your financial situation. One of the most popular ways of consolidating financial obligations, a service that is often referred to as the best option for consolidating multiple bills by many financial experts is debt management plans. Below, we will explain what a debt management plan is, how it works and how it can benefit your debt repayment process and your overall financial situation.
Debt management plans
Debt management plans, or DMP as they are shortly referred to, are a financial method for consolidating multiple financial obligations. Most financial specialists often advise people who are considering this option as their method for getting rid of their multiple debts to work with a non-profit debt management plan organization. With this service, you are getting all your bills shuffled into a single monthly payment. However, you are not taking out a new loan. The company that you choose to work with will create a new account and you will submit your funds to that account each month. After you make a payment to your debt management agency, that agency will then split the payment among all of your creditors. But having a single monthly payment is not all that you would be getting by using this service. The job of the non-profit financial obligation management program company is to negotiate, on your behalf, with all of your creditors to lower the interest rate on your loans, as well as to reduce your monthly payment.
What is the process?
Normally, it all starts with a debt counseling session. The purpose of that session is for the counselor to determine how much money you would be able to afford to pay to your creditors each month based on the specifics of your current financial situation. After that, the job of the non-profit financial obligations management plan agency is to contact every of your creditors and try to negotiate better terms on each of your debts. Your credit management plan agency can also try to waive or reduce any late payment fees that you may have. So, as mentioned above, the repayment process is quite simple. Every month, you submit a payment to the organization running the debt management plan and the agency splits that sum among all of your creditors. Using a debt management program can negatively affect the state of your credit score. However, using this service you should be free from your financial obligations in between 3 to 5 years, which will then drastically improve your credit score.
Alternatives to DMP
Probably the best alternative to a DMP is a consolidating method called debt consolidation loans. Debt consolidation loans are similar to what a DMP can offer you, however, the service is also quite different. By using a debt consolidation loan to consolidate your multiple financial obligations, you would not only be combining all of your bills into a single monthly payment, you will also throwing all these bills into a brand new loan. That loan, of course, will come with new loan terms. If you have a decent credit score, you may be able to secure much better terms on your debt consolidation loan, including a lower interest rate.