The financial crisis of the past few years have left many Americans dead broke. The situation has been compounded by the fact the Americans by nature love to spend be it on eating out or shopping for new gadgets. With freeze or pay hikes and even job cuts many Americans have fallen into the horrible debt trap. Interestingly a sizable number of people who are in debt comprise of people under the age of 30 who are full of aspirations and have a long life ahead of them. Most of them make use of plastic money and often fail to realize the rising mountain of debt over their head.
There isn't any textbook solution to managing debts and to start with you need to cut down on your personal expanses especially ones purely spent on leisure. This leaves you with more money to pay off debts and also eliminates the chances increasing debts. This might work if you have small amounts of money to pay back but most often people land up in situations where they have debt from multiple sources. What hurts you most in such cases is not debt alone but the high rate of interest which makes the debt amount grow exponentially and force you into a financial bondage. In such situations most people look towards 'Debt Consolidation' to get rid of their woes.
Debt Consolidation is nothing but a method under where you take a large loan to payback other debts. Under this process your consolidate your debts into one payment cycle at more favourable interest rates instead of having to pay multiple creditors at different interest rates and in different payment cycles. But this method of managing your debt does have its own share of pros and cons which we shall take a look at.
The interest rates of consolidated programs are lesser than those charged by your creditors. This reduces the amount of money you payback as interests.
Debt consolidation programs negotiate with your creditors which relieves your of telephone calls and agents who can take peace out of your lives.
It reduces the monthly payments which can put less stress on your personal expenses and manage a good living.
The biggest con of debt consolidation programs is the fact that it will decrease your credit score. Getting unsecured loans and applying for new credit cards might become difficult.
If you creditors are charging you variable rates of interest you might be on the losing side with debt consolidation programs which charge your fixed rates of interest.
So you need to make a decision based considering all the pros and cons. Make sure you choose a good debt consolidation program with a reputed firm and study their terms and conditions in detail. There are cases where debt consolidation programs give your more trauma that paying off creditors normally. Choice of bad program can hurt your credit score badly. So it is advisable that you consult a financial expert before opting for such a program.