Consolidating debt with a

21-Jul-2014 17:10

A debt management plan typically sets you up to pay off your debt within five years. Counseling agencies are different from debt settlement companies. “If your debt problem is bad enough that you require a debt management plan, then you should also consider making an appointment with a bankruptcy attorney,” says Nerd Wallet personal finance columnist Liz Weston.You pay the counseling agency, which pays your bills and gets your interest rate reduced or fees waived. Those companies ask you to divert your payments into an account from which they make lump-sum settlements with creditors who haven’t seen a dime in months. “You don’t want to keep struggling with debt that ultimately may not be payable.” Filing for bankruptcy lets you erase your debt and keep some of your possessions, but it typically stays on your credit report for 10 years and affects your ability to get loans or new forms of credit.If the interest rate on the new loan is lower than that on the previous ones, this can save the debtor money on his or her monthly payments.If used wisely, debt consolidation can be a lifeline.You also can borrow against the equity in your home, a retirement account or a life insurance policy.Avoid surprises: Before you start, get a handle on your credit scores and get a free copy of your credit reports. This type of credit card charges no interest for a promotional period, often 12 to 18 months, and allows you to transfer all your other credit card balances over to it, usually for a small fee.

So the first step in debt consolidation is simply to consider whether it will actually work for you.Many people try debt consolidation, but not all emerge better off.Some borrowers wind up in worse shape, either because they run up their credit cards again or because their debt remains overwhelming despite the better repayment terms.This method works best if you have a plan to pay off your debt within the 0% promotional period.Pros: Allows you to manage only one credit card payment at no interest, instead of multiple payments at high interest.

So the first step in debt consolidation is simply to consider whether it will actually work for you.

Many people try debt consolidation, but not all emerge better off.

Some borrowers wind up in worse shape, either because they run up their credit cards again or because their debt remains overwhelming despite the better repayment terms.

This method works best if you have a plan to pay off your debt within the 0% promotional period.

Pros: Allows you to manage only one credit card payment at no interest, instead of multiple payments at high interest.

A long credit history and good credit scores are necessary to qualify for 0% balance transfer credit cards and the best rates on personal loans.