Once you realize that you actually have a serious debt problem, it is essential that you take decisive steps to eliminate or at least reduce the amount of debt that you have in order to remove the inevitable huge level of stress that comes from owing a lot of money to multiple companies.
If your credit record is clean, or at least reasonably good, then you should consider to what extent debt consolidation makes sense. The aim and purpose of debt consolidation is the reduction of monthly interest and the repayment rate.
If you have two or more loans, then compare the best credit offers from debt consolidation companies in order to pay off your existing loans and make a new start in one single long-term loan.
The basic premise of a debt consolidation loan is to pay off all of your debts at one time. This means taking each debt to every credit card company, store cards, the loan you took to build an addition on your home, and your car loan as well as all your other debts.
Other debts may include things like being behind on gas and electric bills. Debt consolidation companies gather every single debt you have and add them all up to arrive at a total amount that you owe to every company.
It will often come as a huge shock to realise exactly how much you do owe when it is all written down on a sheet of paper in front of you. Most people have no idea how much they owe in total. Many more will vastly underestimate exactly how much their total debts are.
When the debt consolidation company arrives at this total figure they will then suggest that you take out one loan to pay off all these debts. Many people reject this idea out of hand because they see it as simply replacing many debts with one debt, and they cannot see the advantage.
There is an advantage, and it is a big one, the interest rate on for example credit cards is huge, taken over several years you can pay several hundred percent. If you combine all of your debts with a debt consolidation loan you will be paying a much lower rate of interest overall.
The loan will spread out over several years at this lower interest rate; this means that your monthly payments will be cut dramatically. It is very common for the total amount you pay each month to be cut half even less.
For most people cutting the amount they have to pay each month in half means the difference between living life in relative poverty or living comfortably.
Of course as with everything in life there is a catch, you do have to put your house up as collateral against loan. This is a serious proposition that should not be taken lightly, but if your debts and dragging you down and you can envisage a point where you could lose your home then you possibly have nothing to lose.
This was written by Donald Farber from the free life insurance quote website LifeCover.ca.