There are many individuals, firms and companies around who strongly disagree with the concept of debt settlement. This group of individuals and companies actually believe that trying to use the debt settlement approach to solve financial problems is just a joke, a waste of time. The philosophy that comes into play in these instances is the one that you either pay up your debts slowly and steadily, or you plead bankruptcy. Seems to be a simple and clear-cut approach to the problem of indebtedness, but in the long run, the pain and worries that come along with this shortcut approach are just too much to bear.
If you are one the shy from pains and stress, it will do you good to have at least a working knowledge of the various options by which you can extricate yourself from debt problems. Even though you might not necessarily have to use any of them, it would still be wise to have the knowledge handy. As they say, “no knowledge is wasted” and it is the information you have today that will help you when the time comes for use.
This is where I would like to introduce the concept of debt consolidation. It is one of the many debt relief options available to you, but it becomes very helpful when you are a victim of debts that are incurring very high interest rates. People who commonly fall into the high-interest trap are often those who borrowed under flexible interest rate options. It seems easy and innocent at first, until time goes by. Mostly, the rates are fixed at, say six per cent. But with each installment, the problems compound, as the interest rate multiplies.
First, six percent increases to eight, then to twelve. Sweet isn’t it? Add to that the fact that lenders that are not secured also attach a clause that confers them the right to charge you a penalty fee when your interest rates begin to mount, or when you have exceeded a given amount of time. So you would be in effect paying both the interest rate and the penalty fee.
In a situation like this, you can do the smartest thing, which would be to borrow mo0ney from another low-interest alternative and take care of the debt from the high-interest point. This will create some breathing room and keep the sharks away. For instance, if you were currently paying in eight per cent to the high-interest lender, you might be relieved if your new burden is only six per cent. The interest you save on this can then be used to repay the lower interest option.
One important note: to make use of the low interest repayment opportunity, you need to already have a good credit rating. Therefore, this method of debt relief is only beneficial and useful only when you are just beginning to enter debt problems. The thing about debts, is that the longer you are indebted, the leaser your credit rating. Hence, you need to bear in mind that the more you skip your payments, the more your credit rating drops.
The low interest switch is not the only way you can benefit from per cent cuts. You could deal directly with the lender, requesting for a discount for a bulk payment. The percentage should be enough to alleviate the strain of the debt.
Andy Eze is a writer for CreditCardComparison.com.au. a Free Third Party Reviewer of Financial Products