What are the advantages and disadvantages of debt consolidation?

jimmyaven asked:

I have two credit cards that I have used over 5 years ago and never paid back. The total of the two cards FIVE YEARS AGO was $1000. Of course, by now, it should be close to $3000 because of all the interests.

What does debt consolidation do? More importantly, can it REALLY remove or reduce the interest that built up over the last 5 years?

When doing a search for debt consolidation services, I get THOUSANDS of results. Which debt consolidation services are better?

Detailed answers would be appreciated.
Update: Am I correct to assume that if I leave the debt as it is, I can have it completely wiped off my credit card two years from now as if it never happened?

Consolidate your debt today

One Response to What are the advantages and disadvantages of debt consolidation?
  1. jemhasb
    July 13, 2009 | 1:27 am

    Being in Australia, I can’t comment on what facilities are available. Go to a bank, or other financial institution and ask them what they offer.

    First, and most important, DESTROY ALL your credit cards. No use consolidating debt if you just use it as an excuse to get into more debt.

    Second, make payments that are about the same as you make on the total of all your payments at the moment. ie if you have 3 payments of $75.00, arrange your new loan so that your new monthly payment is about $200.00.

    Now, to answer your question. Debt consolidation is getting one loan to pay out all your other loans. This means that you have only one payment per month to pay and that payment is a set amount. Depending on the terms of the loan the payment or the length of the loan may vary if interest rates go up or down.

    With debt consolidation, you arange a personal loan which may be secured or unsecured at an interest rate which is far lower then your credit cards and often with reduced fees. Here, you may pay 15% to 20% interest on your cc but only 7% to 10% on a personal loan. A saving of between 5% and 13% on $3000.00 will be as little as $150.00 to as much as $390.00 in the first year.

    The thing is that you have only one debt to pay, and destroying your credit cards stops ffurther debt.

    Yes, it should help reduce the interest you pay on your debt. The only way you can eliminate it is to pay it off.

    There is some great advice in the bible to everyone, not only Christians. It comes from Rom 13:8 and says ” Owe no man any thing, but to love one another…”

    I have debt, but I am heading to the place where I can be compliant with this Godly advice.

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