September 26, 2022

World Trades

Finance Blog

Understanding Debt Consolidation Solutions

3 min read

Few people take out personal loans or open credit card accounts with the idea of never paying them back. Despite these good intentions, record numbers of Americans are falling behind on their payments. According to a recent Wall Street Journal article, millions of citizens are skipping payments because their financial situations have changed. Many find solutions when they turn to debt consolidation professionals. For example, people seeking solutions see Debthunch’s profile online, contact the company, and arrange for solutions that make it easier to manage their bills. 

What Is Debt Consolidation? 

The phrase “debt consolidation” refers to the process of taking out a new loan to pay off other consumer debts, typically unsecured ones. Debtors work with professionals who combine several balances into one larger debt that usually offers better terms. Clients pay off old balances with their loans and are left with a single payment each month. Their new loans typically give customers more time to repay the money

Who Benefits from Consolidating Debt?

Clients who work with debt consolidation companies can fall into several categories, and not all of them have credit problems. Some people have good credit but find it difficult to manage several payments each month. Clients might have multiple high-interest credit cards and can only afford minimum payments. Customers who are in danger of falling behind in their bills also benefit from programs that roll several balances into one more manageable payment. Consolidating debt can:

  • Lower the amount of interest customers pay
  • Simplify bill payment
  • Minimize stress by reducing the number of companies clients deal with 

Some Clients Choose a Personal Loan

Personal loans that allow customers to pay off existing balances are the most common debt consolidation solution. A loan is a good answer for those with good credit since they can often get preferred interest rates that are less than they are paying on credit card balances and other debts. However, customers with less-than-perfect credit can also benefit from loans.

They might pay higher interest rates, but their new monthly payment could still be less than the total amount they pay to several companies. New loans are especially helpful to clients who have been paying minimum payments on credit cards for years and still have large balances. Consolidation loans have a fixed interest rate, monthly payment amount, and repayment timeframe. 

A Line of Credit Can Help Restructure Debt

Some customers restructure their debt using a line of credit. It is a good option for those with good credit but are struggling to keep up with monthly payments. A line of credit provides clients with an amount they can use to pay current balances. However, credit lines are flexible, and clients can either pay them in full or pay them down and use available credit as needed. For example, a customer who takes out a $5,000 line of credit and then pays off $2,000 has access to $3,000 in credit. It works like a credit card, but often has a lower interest rate and a set payment amount. 

Debt consolidation companies help clients roll several credit cards or loan balances into one new loan or credit line with a single payment. Consolidating debt can simplify money management, reduce interest rates, and lower customers’ stress levels.