Debt consolidation loan and debt relief options that help to reorganize finances
The average American in the age group of 18-40 years has become heavily dependent on debts that have now become a way of life for most. Debts are increasing at an alarming pace for US consumers thereby exposing them to high financial risks. However, debts are not bad, as long as you can handle it responsibly and use the money for attaining certain goals in life like buying a house, education, etc. In situations when you take debts for meeting some life goals, debts acquire a special dimension, as it becomes the economic engine of your life. This is an example when debts become a capital investment that forms the foundation for better living.
Good and bad loans
Medical emergencies are the most cited reasons for taking debts besides the sudden loss of job, unemployment, and changes in a family set up or situation being the other unforeseen reasons. Handling debts responsibly would ensure that debts become a true lifeline to salvage your economic condition and not a fountain of joy for fulfilling your whims and fancies. It is only when you consider debt as a means of sustaining your life to fulfill some basic needs and do not look upon it as financial support that empowers you to spend more just for the sake of it that you would be more sensitive to debts and manage it well. The majority of problems faced with debts arise from its poor management and the reckless borrowing.
Household debts are climbing rapidly
According to a report published by the Federal Reserve Bank belonging to the Center for Microeconomic data, New York, by the end of 2017, the total American household debt reached an all-time high of $13.15 trillion. Household debts have been on the upswing for the fifth year in succession with credit cards, auto loans, student loans and mortgage being the main contributors. The total debt has increased by a whopping $193 billion, which has exposed the dark side of the economy as experts fear that the debt hangover could crush lives and kill the economy.
The need for debt management
Against the above backdrop, debt management has become a hot topic today. Everyone has realized that it is a pipe dream to think about leading a debt free life. Rather it would make sense to learn to live with debts by keeping it under control. People are now eager to know ways of reducing debts and if possible try to get rid of it systematically. In this article, we will discuss the options available in debt relief when too many loans breathe around your neck that becomes unmanageable. Besides knowing the options, seeking professional guidance in debt management
Non-profit organizations, as well as professional companies, offer credit-counseling service to consumers. The basic purpose is to educate them so that they can manage finances better by becoming more disciplined and organized. It would prepare them for a life that depends less on debts. Besides providing financial education, they also provide services in credit counseling and debt management. They assist people with poor credit scores who are neck deep in loans to work out survival strategies by providing debt relief. Credit counseling involves tips on improving your credit score by paying off debts is a methodical manner. The counselors would consider you entire finances that include assets, income and expenditure and by taking into account the kind of lifestyle you want to maintain they work out financial solutions by matching it with a suitable debt management plan.
Debt management plan
Credit counselors work out debt management plans with the objective of eliminating debts. The plan includes specific recommendations that aim at reducing monthly payments and at the same time bringing down interests and fees. Overall, the target is to reduce the financial burden of borrowers and encourage them to pay back debts so that a time would come when it might be possible to wipe out all debts. However, whether debts would be eliminated or not depends not only on doing the arithmetic right but also on the attitude and behavior of consumers. Unless consumers believe that they could lead a life without debts and practice it, it becomes extremely difficult to eradicate debts.
When you find yourself surrounded by several unsecured loans that become difficult to manage, the best way to continue with loans comfortably is to avail debt consolidation. Debt consolidation is an arrangement in which you take a fresh loan equivalent to the total outstanding debts and use the money to pay back all other creditors. Although you would be taking a fresh loan, you get rid of multiple lenders that had become too difficult to handle. While taking the new loan, you get the opportunity to negotiate lower interest so that the monthly payout is less than earlier and you enjoy some savings.
This method of seeking relief from debts entails re-negotiation with lenders to make them agree to settle the debts for an amount less than what you owe them. By making a one-time lump sum payment, you close the loan accounts. The process impacts the credit score negatively, and usually, people already having poor credit scores use this method as a desperate measure to come out from debts. Only if you are a hard negotiator or take help from debt management companies that the process can work for you.
This is the last resort for borrowers who have tried out all other options for debt relief but failed. Seeking bankruptcy could provide you an opportunity of starting afresh, but the price that you have to pay would be too much. If you are ready to build your finances from scratch, then you could try this out by filing for bankruptcy for either wiping out debts or repaying it within 3-5 years.
There is no one size fits all solution in debt relief, and your financial health determines what would be right for you.