Credit Consolidation
Americans are more at odds with debt now than they ever have been. When you consider the following statistics, you'll understand why the credit consolidation industry is growing so fast:
- Americans bought $2 trillion worth of "stuff" in 2004
- The current outstanding debt in America stands at $800 billion
- The average amount of unpaid credit card debt for families who have it is $12,000
- Credit card debt for Americans living below the poverty level doubled by the mid 1990s
- The average credit card balance for senior citizens went up 89% from 1992 to 2001
- The average amount of consumer debt per person is $7,100
- Credit card companies made $7.7 billion in late fees in 2003. (It was $1.7 billion in 1996.)
How Credit Consolidation Helps
When you enroll in a credit consolidation program, a credit management professional will analyze your finances to make the right recommendation about which type of credit consolidation program is right for you. They might suggest a basic credit consolidation plan, a debt consolidation loan or a debt consolidation mortgage.
If you decide to enroll in a basic credit consolidation program, a professional from a credit consolidation company will contact your creditors to get your balances and interest rates reduced to a much more manageable amount. Then you make one monthly payment to the credit management company instead of several monthly payments to your creditors. Because of the reductions in balance and interest rates, you can be debt free in five years. This might sound like a long time, but consider this: The average college student owes $2,800 in credit card debt (not including student loans). If he or she pays $50 a month and the interest rate is 18%, it will take more than ten years to pay it and he or she will have paid $6,154.
A credit consolidation loan is made to you to pay off your unsecured debts. You pay off your unsecured debts immediately, but you still have the loan to pay back. The benefit is that the interest rate on the loan is so much lower (generally half of what you're paying now) and you can have it paid off in five years or less. A credit consolidation mortgage allows you to borrow from the equity in your house to pay off your unsecured debts.
Other Benefits of Credit Counseling
If your debt is out of control to the point that you've missed a few payments (or at the very least had a few late payments) your credit may be suffering. Your creditors might be hounding you by phone or by mail. But enrollment in a credit consolidation program can put a stop to all that.
In addition, they will probably suggest that you get some credit counseling to avoid being in debt again. Credit counseling can teach you how to budget so you can live within your means, how to save for future goals and how to use credit wisely.
All material copyright © 2008 About Debt Management. All rights reserved.
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