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A Closer Look at How Credit Card Debt Consolidation Works

A Closer Look at How Credit Card Debt Consolidation Works

    In recent times many individuals, especially US citizens, are knee-deep in credit card debt. People can incur credit card debt due to many reasons, like medical expenses, extravagant vacations, renovating houses and paying bills due to low income. No matter how you get into debt, you must try to come out of it as soon as possible. You may pursue either credit card debt consolidation, debt settlement, debt management, or even file bankruptcy to wipe off the credit card debt. But remember, debt consolidation has certain advantages over other methods of debt elimination. Before you proceed with the process of credit card debt consolidation, you must know how it works.

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    What is credit card debt consolidation?

    Credit card debt consolidation is a program that allows you to consolidate all your multiple debts into one monthly payment. With debt consolidation, you can lower the interest rate and therefore reduce monthly payments. Thus, credit card debt consolidation helps you pay off your debt as soon as possible. This is the best way to wipeout debt without injuring your credit.

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    Ways to consolidate credit card debt

    • A primary way of consolidating credit card debt is to take out a loan at lower interest rate and merge all the debts into the loan. If you own a home, you may put it up as collateral in order to get a lower interest rate loan. This loan is also known as a home equity loan.
    • Another way of consolidating credit card debt is a balance transfer. Transfer the balance on your credit card to a new form of credit that offers zero or low-interest rate.
    • You may also apply for a personal loan or unsecured line of credit to consolidate and pay off the credit card debt.

    Define your goals

    1. Amend the inflow of cash. Try to reduce the size of your monthly payments over time so that the amount lowers gradually and eventually increases the inflow of your cash.
    2. Rid your debt sooner. Try to erase your debts as fast as possible. This will enable you to save some money and prevent your credit report from getting damaged.
    3. Do not miss payments. Never miss monthly payments and bills. That would certainly add up to the total debt amount — and create stress as well.

    A few important tips before considering debt consolidation

    1. Before you choose the method of consolidating your credit card debt, you must contact creditors in order to find out the outstanding balance on each of your accounts. Then, obtain a personal loan or unsecured loan to pay each creditor in full.
    2. If you are planning to transfer your balance you will have to provide your creditor with billing information, an account number and the balance on the account you are transferring. After you have paid off each account in full, you then have to decide whether you want to close the accounts or want to leave them open.

    The difference between debt consolidation and debt management

    There are many people who think that debt consolidation is the same as debt management and credit counseling. The fact is debt management and credit counseling involves debt consolidation through a company. When you hire the services of a credit counselor or a debt management company, they negotiate with creditors and reduce the interest rate on each account. Then they collect a fixed monthly payment from you and disburse it to creditors in order to pay off your existing credit card debt.

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    Conclusion

    Debt consolidation is the most viable method to pay off the credit card debt. But before going for this option, you must consider some factors associated with it. If you take out a consolidation loan while putting up collateral, you must remember that you cannot afford to miss a monthly payment. If you default on loan repayment, you may lose your asset. So make sure to choose the debt consolidation option through giving it careful thought and analyzing your fiscal situation.

    (Photo credit: Colorful stack of credit cards via Shutterstock)

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    Last Updated on March 29, 2021

    Life Insurance: A Secure Way To Protect Your Future.

    Life Insurance: A Secure Way To Protect Your Future.

    Life is a journey full of ups and downs. No one can actually predict what might happen the next moment; there are times where the happiest moments do not even take a second to turn into the gravest. Planning for your future can help you face such unwelcomed but irrepressible situations with much ease. We all want to make every memorable event of our life more special and to cherish all those moments happily and worry less, you must financially plan your future. But no one has control over life and death. Who would wish to see his family suffer in his absence? Insurance hands over the financial jeopardy of life’s happenings to an insurance company.

    Importance of getting a life insurance

    No one has control over life and death. Nobody would like to see their family suffering in an absence, and that’s why many people recommend life insurance. A life insurance plan is one of the best ways to secure the future of your family, even against those financial troubles after an untimely demise. These plans are safe and credible, and you could trust them for your family’s better future.

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    On the other hand, a life insurance policy is a contract between a company (insurance provider) and policyholder in which the insurance provider ensures to pay a certain amount of money to the nominated beneficiary in case of the policyholder’s death during the term of the agreement. There are different types of insurance plans, and it is important for you to know the benefits of those plans such as a funeral, medical or some life expenses provided they are mentioned in the agreement.

    Choosing the right insurance plan

    If you’re about to select an insurance plan, you should consider some important factors:

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    • The time at which you start investing in a program and the number of family members you want to get insured. Obviously, a married man with two children has different needs compared to a single one. The number of persons who are dependent on an individual also varies from person to person.
    • The next thing you need to consider is you and your family needs. What are your child’s dream, your retirement plans, for how long would your dependents need financial support, any personal injury, etc. And do not forget those events or situations that will surely demand a huge sum of money.
    • The next thing one must consider is your current income. You should preferably choose a plan which you can afford.

    Now you must be having a pretty clear idea of how to choose the best plan for you. Further, you should also compare various plans offered by different companies and numerous sites available online that help will you to compare them.

    Differences between life insurance plans

    Here’s a short brief of some plan categories you can choose according to your needs:

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    • Term Insurance Plan – You have to pay once, and your nominee gets the paid money under your misfortune demise. It ensures a person for a fixed time. If you survive the policy period, you do not get your premiums back.
    • Whole Life Policy – This plan continues for your lifetime. Under this, the policyholder has to pay regular premiums, until their death.
    • Endowment Policy –  In case the individual dies during the tenure, the beneficiary gets the amount assured. If the person survives the policy tenure, they gets back the premiums paid with other investment returns along with several other benefits.
    • Money Back Policy – In this a portion of the money invested is returned to the investor at regular intervals. If you survive the insurance term you get the entire amount back; else the beneficiary receives the entire sum assured.
    • ULIPs – These are the life insurance plans that offer you future security plus wealth creation options.

    Many people do not opt for whole life policy and endowment policy because of the high amount of money you need to pay, while others may prefer to opt for these if they have a high life expectancy. Surely you will find the best one for you.

    So what are you waiting for? Plan for your future and live a happier and carefree life today.

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    Featured photo credit: aryehsampson.com via aryehsampson.com

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