Debt Management Solution

The Smiths have racked up $10,000 due to overspending and layoffs at Mr. Smith's company. It will take them 32 years and $24,500 to pay off at an interest rate of 18.5% if they don't pay more than the required monthly minimum, and they can barely afford the minimum! They need a debt relief solution!

A college student named Ashley owes $2,800 in credit card debt (not including her student loans). If she pays $50 a month and the interest rate is 18%, it will take her more than ten years to pay it off and she will have paid $6,154.

Debt costs a lot, but it's not a status symbol. Both the Smiths and Ashley could benefit from finding a debt management solution. Unfortunately, they don't know what a debt management solution is. Maybe you don't either. But we're here to tell you about some of the most popular ones and give you a brief overview of what they entail.

Debt Consolidation

Debt consolidation is a debt management solution that involves negotiation and combination. When you enroll in a debt consolidation plan, a debt management company contacts your creditors to get your balances and interest rates lowered. (This is the negotiation part of the equation.) The new, lower balances are then combined and you make one monthly payment to the debt management service instead of several monthly payments to your creditors. Because of the reductions, you can become debt free in about five years. (Remember how long it is going to take the Smiths and Ashley to pay off their debt without the help of a debt management solution?)

Debt Consolidation Loan

Through this debt management solution, a loan is given to you to pay off your unsecured debts. You pay off your unsecured debts immediately, but you still have the loan to pay back. However, the interest rate on the loan is so much lower that and you can have it paid off in five years or less.

Debt Consolidation Mortgage

Allows you to borrow from the equity in your house to pay off your unsecured debts. Your payment is combined with your mortgage, and you get the same interest rate as your mortgage. In some cases, you can find a lower rate and refinance your house at the same time, and your payment might not go up quite as much. (Just make sure you can afford the payment because if you miss payments, you could lose your house.) This debt solution is popular because it appears on your credit the same way refinancing your house would.

Student Loan Debt Consolidation

This combines all of your outstanding student loans into one and locks in a much lower, fixed interest rate for you. Your monthly student loan payments are cut by nearly 50%, too, because you are given more time to pay them off.

To find the best debt consolidation solution for your situation, talk to a debt management professional who can point you in the right direction.

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