Neon Funding has joined Cobalt Advisors and Apply Credit 9 and Saxton Associates in flooding the market with debt consolidation and personal loan offers in the mail. The problem is that the terms and conditions are at the very least confusing, and possibly even suspect. The interest rates are so low that you would have to have near-perfect credit to be approved for one of their offers. Best 2020 Reviews, the personal finance review site, has been following Neon Funding, Cobalt Advisors, Saxton Associates, Hornet Partners, Piper Funding, Carina Advisors, Corey Advisors, Pennon Partners, Jayhawk Advisors, Clay Advisors, Colony Associates, and Pine Advisors, etc.).
Owning multiple debts is quickly becoming the norm in America. Studies have found that the average American owes over $90,000 in debt. These debts come from various sources such as auto loans, student loans, and mortgages.
Many Americans that were already burdened with heavy debts before are facing greater challenges due to COVID-19. The pandemic has cost thousands of people their jobs and has reduced the average income across many industries.
These individuals may be using their credit cards to get by during the crisis. However, this only adds to their debt and makes things worse for them in the long run.
If you’re struggling with multiple debts, you should learn how debt consolidation works. This debt relief method can help you reduce your monthly expenses and make your debt burden easier to handle.
What is debt consolidation and how does it work?
Many people use multiple credit cards to make purchases. As a result, they may have accrued many credit card debts with high interest rates and different payment dates. This complicates things because debtors may have difficulty making multiple payments throughout the month.
If they miss a payment on any one of their cards, they will be charged an expensive penalty. The high-interest rates on these credit card debts also adds to their debt burden and slows the rate at which they are able to pay off their debts.
So how can debt consolidation help debtors in this situation? Is debt consolidation a good way to get out of credit card debt? Debt consolidation refers to the practice of taking out a large loan at a low interest rate to pay off multiple high-interest debts. This essentially combines multiple debts into a single one that is easier to deal with.
What other types of debt can be consolidated?
We know how debt consolidation works for credit card debts, but it can also be used to consolidate other types of debt. These include:
Private student loans
College tuition fees are higher than ever before. Students that wish to pursue higher education have no choice but to take out large loans to pay for college. When public student loans fail to cover their fees and expenses, these students may turn to private student loans for assistance.
Students often struggle to pay back these private loans because of their high interest rates and other fees. These students may benefit by using debt consolidation to reduce the interest rate on their loans.
Medical debt
Medical debt is one of the leading causes of bankruptcy in America. The likelihood of people falling ill has only increased during the COVID-19 pandemic, so people that are already struggling with medical debts should turn to debt consolidation for assistance. It may be a great way to help you erase your debt.
Outstanding bill payments
If you are missing payments on your bills, your service providers may send a debt collection agency after you. When this occurs, you will have debt collectors hounding you regularly. They will bombard you with calls and emails throughout the week, and some may even invade your personal space.
You may be able to put a stop to their activities by learning how debt consolidation can help you.
How debt consolidation can help you
Debt consolidation offers many advantages for people with multiple high-interest debts. When you consolidate your debts, you will have only one loan payment to worry about each month.
This reduces the odds of payments being missed, and by connection – late fees being charged.
In addition to this, your consolidation loan will have a lower interest rate than the debts it is paying off. This relieves the burden of high-interest rates that is associated with credit card debts.
Choosing the right consolidation loan
The combinations of the aforementioned factors can make it easier for you to pay off your debt. However, debtors should make sure that the consolidation loan they are using has a lower interest rate than the combined average interest rate of their existing debts. If you know how consolidation loans work you should be aware that getting a loan at a higher interest rate may land you in worse trouble than before.
Another factor to consider is the loan term. Consolidation loans with longer term lengths tend to have lower interest rates. However, this means you could end up paying more interest in total over the course of your loan despite the lower monthly interest rate.
How debt consolidation impacts credit scores
Debt consolidation has a mixed effect on your credit score. Your consolidation loan application could negatively impact your credit, as could opening your new line of credit. However, these effects impact debtors only in the short run.
If you are able to keep up your consolidation loan payments in the long-run, your credit score will improve. These single monthly payments should be easier to manage than with your earlier debts, so the odds of you missing a payment is lower.
The net outcome of these short-run and long-run effects is a gradual improvement in your credit score.
How to apply for debt consolidation
If you are interested in consolidating your debts, you can apply for a consolidation loan through multiple ways.
The easiest way is to complete an online application for a consolidation loan. You can then review the various consolidation offer loans that are available to you, and select the one that fits your needs the best.
Some offers do not require you to contribute funds on a new line of credit, however, you should make sure that this offer has a favourable interest rate and term length.
Should you use debt consolidation?
Now that you know how debt consolidation works, you’re probably wondering if it is worth considering. The answer depends on your situation and your ability to keep up with payments.
If you are burdened with multiple high interest debts that you can’t manage, debt consolidation could be a good option for you. However, if you are unable to keep up with the payments on your consolidation loan, you may end up in a worse situation than before.
You should choose the debt consolidation route only if you’re confident that you can manage your consolidation loan payments responsibly until it is paid off.