What is consumer debt? This is a type of debt incurred by a person for household or personal purposes. In the past few years, consumer debt significantly increased as more people incurred debts rather than thinking of investing their money. In turn, many Americans acquired huge amounts of debt that are hard to pay off. Many face financial hardship nowadays due to the economic crisis. More people are losing their jobs, thus they are not earning enough money to pay their bills. In addition, they worry on what to do to become debt free.

In the present time, the government stresses the importance of financial stability, going as far as looking for ways on how it can help everyone to be successful financially. To start the process, the government initiated programs incorporating or revolving around debt consolidation loan to assist loan takers. This program provides sponsorship to help people eliminate their debt. To help you make an effective choice, you may visit the Federal Trade Commission (FTC) site for the list of agencies and companies that have received recommendations and sponsorship from the government. Through the help of FTC, you save time that you could have spent on doing research and checking for the legitimacy of a company or an agency. You may encounter companies that will offer low interest rates and low monthly payments if they are trying to “sell” a debt consolidation loan. Of course, low monthly payments will help you pay your debt off easily and a lower interest rate gives you an edge. However, you have to realize that these should not be the only aspects to consider if you are going to borrow money. To achieve effective debt consolidation, you must carefully analyze certain factors like the amount of loan you will borrow, processing or service fees, timeframe or length of time to pay back the loan, interest fees and late charges, pre-payment fees, and documentation fees to name a few. Another thing you have to consider is the evaluation of each debt. Understand the terms and conditions of your debt and check the APR (annual percentage rate) and total cost of the loan. If you are not familiar with how it works, you can do research on how to use a loan amortization calculator. There are some resources available online that will help you calculate this. If you think your existing loan is quite cheaper than the one offered to you through debt consolidation, then you must not consider getting your loans consolidated. If it is not appropriate, it will just make things worse on your part.

Briefly, there is no general solution for managing one’s debt. Debt consolidation may be suitable for some scenarios but it does not fit all cases. Asking for advice from and comparing experiences with friends, relatives or colleagues will also help you understand which debt management tool is right for you given your situation. Remember that you do not have to depend solely on the advice of a debt consolidation consultant, as there is personal interest involved in your deal.

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Category: Finances
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