If you have debt, you’re not alone. In fact, the U.S. national debt rose to $17.8 billion last year. New Jersey residents are doing their part, unfortunately, as those of us in the Garden State have an average debt of $62,300—significantly higher than the average American’s $47,500. These statistics support a very basic fact: it’s nearly impossible to go through life without falling into some type of financial hole. Choosing the proper debt consolidation or other financial option can be the difference between climbing out or sinking even deeper.
Debt consolidation refers to several different debt assistance plans that combine multiple debts, loans or payments. When done successfully, debt consolidation can lead to lower interest rates, lower monthly payments, getting out of debt faster, and protecting your credit rating. These are all big benefts that can help you save money—something we can all agree is important!
According to Debt.org, here are the main types of debt relief options you should consider:
Debt Consolidation Loans allow people borrowing from multiple financial institutions to combine them all into one new loan, which can be secured or unsecured. Secured loans are tied to an asset, such as a house or car, which are used as collateral in the event that you default. The unsecured option is not tied to an asset and is based largely on your credit history because you are considered high-risk for a lender. There are pros and cons attached to each.
Student Loan Consolidation are available to help students reduce their federal education debts by combining all of their outstanding loans into one single commitment. This approach may reduce monthly payments and extend the lending time, potenitally making repayment easier. In banking terms, consolidating student loans is like refinancing them. It’s important to note the distinction between federal loans, which are backed by the U.S government, and those from private lenders. These two types should be handled independent of each other when considering consolidation.
Debt Management Plans (DMP) is the method of debt consolidation many people choose. With this type of plan, you can substitute multiple monthly payments with just one monthly bill to a credit counseling organization who then splits it among all your creditors. Another potential benefit is lower interest. Your debt is paid according to a predetermined payment schedule developed by the counselor and creditors. Don’t worry—you will know what the monthly payment is before agreeing to it.
Debt Settlement is a process of negotiating with one or more creditors to reduce the balances of your debts. As a general rule, people who pursue this option can’t afford to pay all that they owe. A successful settlement allows the debtor to walk away without having to foot the entire bill, potentially saving a lot of money. From the debtor’s perspective, this might sound too good to be true, but consider this: if a creditor agrees to an immediate lump-sum partial payment, they will collect on a debt that might have otherwise been uncollectable.
Debt consolidation is not right for everyone. Talk to a trusted financial advisor who can lead you in the best direction. It is also advisable to review everything with your tax prepaper, as these options may affect your taxes. Finally, it is important to investigate any third-party debt management, credit counseling or other related companies prior to agreeing to terms or signing any paperwork. Search for one that is accredited.
One risk-free tool you can use to see where you stand is a debt consolidation calculator. Just enter the information requested and the calculator will determine what your monthly payment would be with a consolidated loan.
Once you’re on the path to less—or no—debt, you’ll want to optimize your fiscal strategy. Let NVE help you grow your money with one of our interest-bearing accounts, such as savings, money market, or certificate of deposit (CD). Visit the NVE website, one of our convenient neighborhood branches in Bergen County, or call 1-866-NVE BANK to learn more.