Haunted by the ghosts of financial past? If you’re like the 40 percent of Americans who can’t afford to pay bills, something clearly has to give. Whether plagued by high APR credit cards or old loans you can’t afford anymore, past borrowing mistakes have a significant effect on your financial future. Luckily, debt consolidation — if properly executed — can provide effective course correction.
Debt consolidation is the process of combining several small loans into one large one — think of it like a universal remote for personal finance. Not only does debt consolidation help organize all loans into a neat package, but it can also save you a lot of money.
If you have several outstanding loans, all with varying interest rates, it’s possible that an outlier could be costing you. Say, for example, a car loan you took out in your younger years — when you were still building credit — has a higher interest rate than your other loans. That one blemish on your lending history is likely costing you over time.
In this instance, a balance transfer to a low-interest loan, or low APR credit card, could help balance out high interest anomalies, and reduce debt.
There are several ways to consolidate debt, and picking the right method is important to maximizing savings. Here are a few of the most popular approaches to debt consolidation:
In most cases, the success of consolidation is predicated on an improved credit score (compared to when you initially borrowed money). After all, the goal is to transfer high-interest lending to a more favorable account. So, given that an improved credit score can lead to a low interest consolidation loan, how can you effectively fix credit and start consolidating debt?
Start with the fundamentals. Get the help you need, and partner with a credit repair service to boost your FICO score, and improve the efficacy of debt consolidation.
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