I read somewhere that sooner or later, everyone sits right down to a banquet of consequences. This is especially true when it comes to debt. It's possible to have an enjoyable experience running up debts but eventually there will be consequences and they won't be pretty. If you have an overwhelming amount of debt, you realize precisely what I mean. You're probably receiving harassing telephone calls out of your creditors or, even worse, from collection agencies both night and day. You could think about changing your phone number just to eliminate that never-ending barrage of calls. But trust me when I say when you do this, you'll enjoy only short-term relief from those nasty calls as creditors are amazingly adept at finding those who have changed their numbers.
How debt consolidation reduction works
The simplest explanation of how debt consolidation reduction works is you use new debt to pay off old debts.
There are many ways you could accomplish this. For example you can get a bank loan and pay off all of your creditors. Alternately, you could visit a non-profit consumer credit counseling agency for help. Or you could do a balance transfer where you transfer the balances on high-interest credit cards to 1 with a lower rate. It's even easy to get a 0% interest balance transfer card, which would require you to don't pay interest whatsoever for as few as six or as many as 18 months.
The way a debt consolidation loan saves money
All three of these forms of debt consolidation can help you save money. Let's take a bank loan as an example and suppose you owe $15,000. In case your debts have an average APR of 20% and total payments of $600 per month, it might get you 17 years being free of debt and you would pay a total of $25,611. However, should you be able to take out a debt consolidation loan at 9.95%, you could be debt free in 48 months, and would pay you use just $18,112 or a savings of nearly $7,500. You'd be also debt free 13 years faster.
How cccs could help
A second popular method to consolidate debt is through cccs. The way in which this works is that you are assigned a counselor who will help you create a repayment plan and negotiate with your creditors to get your interest rates reduced. If all of your creditors agree to your plan, you would be required to send the credit counseling agency one payment a month before you completed your plan. While you can't really say exactly how much you'd save with credit counseling, it ought to be a respectable amount.
How a balance transfer can save you money
You could also save money should you be in a position to transfer your balances on high interest credit cards to one having a lower interest rate. Going back to the illustration of $15,000 indebted at an average APR of 20% and if you wanted to be debt free in Three years, your payment per month would be $558. In contrast, if you transferred that $15,000 in debt to some card with a 12% interest rate, your monthly payment could be just $499 or a savings of nearly $60 per month.