I read somewhere that sooner or later, everyone sits right down to a banquet of consequences. This is also true in the case of debt. It's possible to have a lot of fun running up debts but eventually there will be consequences and they won't be pretty. For those who have a massive quantity of debt, you know exactly what I mean. You may be receiving harassing phone calls out of your creditors or, even worse, from collection agencies both night and day. You could think about changing your phone number just to get rid of that never-ending barrage of calls. But believe me when I say when you need to do this, you'll enjoy only short-term respite from those nasty calls as creditors are amazingly adept at finding people who have changed their numbers.
How debt consolidation works
The simplest explanation of methods debt consolidation works is that you use new debt to repay old debts.
There are several ways you could accomplish this. For example you can get a bank loan and repay all your creditors. Alternately, you could go to a non-profit cccs agency for help. Or you could do a balance transfer in which you transfer the balances on high-interest credit cards to one with a lower rate. It's even possible to get a 0% interest balance transfer card, which may need you to pay no interest at all as few as six or as much as 1 . 5 years.
How a debt consolidation reduction loan saves money
All of these forms of debt consolidation reduction can save you money. Let us take a bank loan as an example and suppose you owe $15,000. In case your debts have an average APR of 20% and total payments of $600 per month, it would take you 17 years being free of debt and also you would pay a total of $25,611. On the other hand, if you were able to take out a debt consolidation reduction loan at 9.95%, you could be free of debt in 48 months, and would pay a total of just $18,112 or perhaps a savings of nearly $7,500. You'd also be debt free 13 years faster.
How cccs could help
Another popular method to consolidate debt is through consumer credit counseling. The way this works is that you are assigned a counselor who'll help you create a payment plan and negotiate with your creditors to get your interest rates reduced. If all your creditors agree to your plan, you would be required to send the credit counseling agency one payment per month before you completed your plan. While you can't really say exactly how much you would save with consumer credit counseling, it should be a decent amount.
The way a balance transfer could save you money
You could also save money should you be able to transfer your balances on high interest credit cards to one having a lower interest rate. Going back to the example of $15,000 indebted in an average APR of 20% and if you desired to be free of debt in 36 months, your monthly payment could be $558. In comparison, should you transferred that $15,000 in debt to some card with a 12% interest rate, your monthly payment could be just $499 or a savings of nearly $60 per month.