If you want to save for your future, one important first step is to get rid of your debt. If you're paying 5, 10, 15 percent or more on a debt account, paying off that debt quickly is a way of saving money in interest costs. You can pay off debt either by consolidation or by initiating your own personal debt payoff plan.
Debt Consolidation Option
A debt consolidation is a plan to pay off debt by combining all debt into one loan account. Debt consolidation companies often offer to negotiate with creditors to get better terms and then combine the adjusted balances into the new loan. You must make one payment each month for all debts until you pay all them off.
Debt Consolidation Considerations
Using a debt consolidation company is sometimes beneficial if you need help negotiating your balances. For instance, some consolidation companies can cut the balance due on each account significantly to make it simpler for you to pay off the loan quickly. But the downside of using a debt consolidation company is that you must pay an additional fee for their services. Also, you may end up with lower payments each month, but in some cases consolidated loans come with high interest rates that stretch the loan term out for many years. Working with a debt consolidation program could possibly have a negative effect on your credit history and score.
Do-It-Yourself Option
If you choose to eliminate debt yourself, you must make a budget and use a debt-reduction technique without the assistance of a plan provider. One of the most common methods of DIY debt reduction is to pay off your highest interest rate debts first. So in this case, you would pay all extra funds toward the debt account with the highest rate, while maintaining the minimum payments on the other accounts, until that high-rate debt balance is gone. Repeat the action for the next-highest rate until all accounts show a zero balance. Another option is to try to apply for a home equity loan or other low-interest rate credit card that will allow you to consolidate all of your debts into one without the help of a provider.
Considerations
When you choose the DIY approach to debt elimination, you may experience challenges as well. For one, if you decide to choose a basic debt reduction strategy, you may have to continue to pay the same balance on each account, whereas with a debt consolidation the provider might be able to negotiate a lower amount. Doing it yourself may require more time and dedication on your part since you don't have the help of a consolidation company, but you don't have to worry about its affect on your credit history as long as you continue to make on-time payments.
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