Debt Consolidation Facts
Everyone has probably heard of the term “debt consolidation” and certainly the terms individually. The actual process of debt consolidation, while not overly complicated, does warrant explanation. Debt consolidation, either done alone or with the help of a professional credit counselor, is designed to eliminate debt. Those monthly credit card bills, medical bills, and other ever-increasing payments that are overwhelming your check book each month. What a consolidation does is look at your bills individually, reduce them through negotiation where possible, and then pay them off.
Your bills are paid off by lumping them together into a single sum. This amount is than paid off at once to each of your creditors with the money from a new loan, the debt consolidation or debt loan. The debt loan is then paid by you, once monthly for the term of the loan. Instead of paying multiple bills each month with increasing interest, you make one easy and low payment, and get debt freedom sooner.
Credit Companies Are Getting Rich
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There is a reason why your mailbox is full of junk mail. Credit card companies are on the rise and looking to send you countless offers to sign up with them. Credit card companies are some of the largest and most lucrative business enterprises found in the nation. There is good reason for this; they make a lot of money.
Most people however do not fully understand how these companies make their profits, hand over fist. It is quite simple: interest payments. The credit they extend to you for your purchasing needs, is accrued with interest payments, some as high as 25% or more.
Most people who use credit cards are unable to pay off their total amount owed each month and instead simply make a low or even “minimum” payment. This means you may not have to pay that money now, but the bill is getting higher and it’s getting higher fast. Look at this example of how some borrowed money from a credit card company can quickly grow into a big bill for you, and easy money for the credit card company:
- You charge over a one month period $2,500 on your MasterCard.
- Your interest amount (APR) is 15%
- Your company offers you in your bill the option to pay the minimum payment- $50.00
- You make this $50 minimum payment for 6 consecutive months paying a total of $300
- You will in six months still owe your MasterCard account $2,379
Additionally, if you were to continue with this minimum payment you will have paid in interest $1,488 and be making 79 payments over the next 6.5 years! It's easy to see how these companies not only make a hefty profit, but put you into the poor house at the same time.
What Credit Card Companies Don’t Like
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Credit card companies, in a perfect world, would be happy to have you paying your monthly minimums forever. In this manner, you never pay off your bills but are making a nice monthly payment right into their bank account. What credit cards don’t like are responsible borrowers who use their lines of credit, and then pay them off quickly. In this manner, there is no money to be made save a small and insignificant interest amount. The significance is that these companies are not interested essentially in the actual money they lend to you, but how long you take to pay it back- that is where they get rich. Debt consolidation has become the bane of the credit card industry.
With debt consolidation loans, consumers are walking up to their credit card holders and handing them a check to settle up. This means no more interest payments every month, and a huge loss in profits for the credit card company. Consolidating your credit cards today with a debt consolidation loan may not make your creditors happy, but could mean the difference to living in debt and living debt free for you.
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