Debt Consolidation Information |
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Eight Ways to Consolidate DebtGerri Detweiler Next to winning the lottery, a debt consolidation loan is a debtor’s dream. With one monthly payment and a fixed monthly payment schedule, you can actually see an end to those monthly payments. In reality, consolidating bills isn’t always easy. If you have a lot of debt, it can be hard to find a consolidation loan at a lower interest rate. And if you’re not careful, you can end up deeper in debt than when you started. Your goal in consolidating your debt should be to lower your overall costs. To accomplish this there are two things to keep in mind:
Here are some of the best ways to consolidate: Using Credit Cards The good news about this method is that with a good credit rating, you may get a much lower rate than other forms of consolidation loans. And since credit card issuers don’t require collateral, you aren’t “risking the farm.” Call your current issuer to ask what interest rates they will offer you if you transfer balances from other cards over to theirs. Go for a fixed rate if you can get it, and ask them to waive any transfer fees. If you can’t negotiate a low rate with your current issuer, try shopping for a new card at a site such as CardRatings.com. But be careful! Too many applications for credit in a short period of time can hurt your credit rating. Once you do consolidate this way, be sure to set up an optimal payment plan so you can be debt-free in 3 – 5 years. Home Equity Loans With a home equity loan, you borrow against the value of you home, minus any other mortgages. The two major kinds are: 1. A Home Equity Loan – a fixed amount of money for a fixed period of time sometimes at a fixed rate and 2. A “Home Equity Line of Credit” where you borrow up to a pre-approved credit limit interest rates usually variable and can borrow again if you still have money available. These loans can offer attractive rates, low payments, and the interest is usually tax-deductible if you itemize. Many issuers offer no or low closing costs for these loans. Interest rates are often variable, however, and there’s always the risk that you can lose your home if you can’t pay. Cash Out Refinance Refinancing your home and taking out money to pay off bills called “cash-out refinance” is yet another way to tap the equity in your home. If you can refinance at a substantially lower interest rate, you’ll eliminate the high interest costs of the debts you pay off, and you could even come out with a lower payment than you have right now since rates are so low. One option to consider: an interest-only loan. By lowering your monthly payment, you can free up money to use toward paying down other high-rate debt or building a retirement fund. Make sure you understand the total cost of refinancing. Take any money you’ve freed up by paying off other bills and use that to create an emergency savings fund. Traditional Debt Consolidation Loans A debt consolidation loan is an unsecured personal loan, and the only collateral you are offering for the lender’s security is you. Because lenders consider them risky loans, they’re usually more expensive and not always easy to get if you have a lot of debt. If the interest rate is too high to make it worth it and the repayment term is ten or fifteen years, you should probably consider another method of consolidation. However, if the term and interest rate are right, this can be a great way to actually save money in the end. Check Bankrate.com for current averages. Remember, to calculate the total cost of the loan from start to pay-off. Credit Counseling Credit counseling agencies may help you get out of debt, though they don’t actually consolidate your debt. Instead, payment plans usually with lower interest and fees will be worked out for all of your eligible debts. You’ll make one monthly payment to the counseling agency, which will pay all your creditors. Participating in a credit counseling program generally won’t hurt your credit rating, and if you stick to the plan you can be out of debt in three to six years. But be careful which agency you work with. If the counseling agency pays your bills late, you’ll pay the price since you’re still responsible to the lender. It happens. Debt Settlement Debt settlement is another option that’s become increasingly popular with consumers who have a lot of debt and can’t, or won’t, file bankruptcy. You stop paying your bills and instead make a regular monthly payment to the settlement company. Your creditors contact them, and not you, about your overdue bills. As your accounts fall further behind, the negotiation company will settle your balances – usually for 50% of the balance or less including fees depending on the debt. Most people can be out of debt in less than two years or less using these programs. It’s not perfect. Your credit rating will be hurt in the short run and you must be certain you’re dealing with a reputable company or the money you pay each month could disappear. Still, for consumers who can’t shoulder the burden of debt they have now, it can be a very good option. Retirement Loans If you have a 401k, 403b plan or certain types of pension plans, you can borrow against your nest egg. You can’t borrow against your IRA. It’s easy, with no income qualifications or credit check. The key here is to borrow against your retirement account, rather than withdraw from it early so that you don’t end up paying taxes and a 10% penalty. Also, if you leave or lose your job, you may have to pay your loan back immediately or pay taxes and penalties for an early withdrawal. These loans typically offer low interest rates, and interest is paid to you, since you are the lender. While tapping your next egg like this can short-change your retirement, so can costly debt payments. If you are in your 20’s and 30’s, you obviously have more time to rebuild a retirement nest egg, but even if you’re in your 40’s or 50’s, you will want to weigh the cost of paying the high interest of the debts over time, versus borrowing from your retirement account. The return you get from paying off high-rate debts is guaranteed – while the stock market isn’t. Rapid Repayment There is a mathematically optimal way to pay your debts. Choose a fixed level monthly payment, and commit to it each month. Pay as much as you can on the highest rate debt first, while payment the minimums on the rest. I almost always suggest consumers with debt start by creating one of these plans. Many people who do so find they don’t even need to consolidate to get out of debt in the next few years. They just need a plan and they can do it on their own. Overview The biggest mistakes people make when it comes to consolidation are:
For more information on dealing with debt, visit www.stopdebtcollectorscold.com. Copyright 2003 by Gerri Detweiler, all rights reserved.
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Rebuild & Keep Good Credit Ratings by Understanding Your Credit Cards SECURED CREDIT CARDS Eight Ways to Consolidate Debt Next to winning the lottery, a debt consolidation loan is a debtor’s dream. With one monthly payment and a fixed monthly payment schedule, you can actually see an end to those monthly payments. Worried About Debts Having trouble paying your bills Getting dunning notices from creditors Are your accounts being turned over to debt collectors Are you worried about losing your home or your car Life After Debt – Strategies for Dealing with Problem Debt Honorably and ethically rid yourself of burdensome debts using the little known Negotiation Strategy, without having to experience the loss of control and privacy associated with filing for bankruptcy, consolidation, or credit counseling. Why Choose a Home Owner Loan Most people choose a home owner loan as it can release the capital that is tied up in their property for immediate use. The loan can be used for any purpose, and is available to anyone who owns their home. Home loans can be used for any purpose such as, home improvements, new car, luxury holiday, pay of store card or credit card debt and debt consolidation. 5 Things In Selecting The Best Mortgage - You Should Know Your goal is not only to find the best rates and programs, by searching through a huge number of lenders products, and save yourself thousands of dollars on mortgage payments every year, but also, to save time and hassle by simplifying the loan process and reducing the paperwork. Here are some things you can keep in mind when selecting a mortgage provider. Debt Consolidation.Just lump it all together! In a world where people use credit as much as they drink water, it is no surprise that so many people need debt consolidation loans. 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Best of all—the seller had to move immediately, so the home was a steal and miraculously within her budget! Amy was already making moving preparations when suddenly, a devastating blow paralyzed her plans. Her credit application for a mortgage had been denied. She couldn’t understand how this had happened—just a year ago, her credit had been almost perfect! The last year had been a little tight, and sure she had a few late payments here and there…but she had no idea it was so bad that now she couldn’t even get the home of her dreams. Why Choose a Debt Consolidation Loan If you are one of the many people who continually struggle to cope with an ever increasing amount of debt the solution could well be within your reach. Save Money On Your Grocery Bill Weve all heard about certain ways to cut your grocery bill like avoiding the grocery store when youre hungry, using coupons on double coupons day, and buying only the items on your list.These are all good tips and we should keep using them.However, Ive found a few pointers that might help you save even more on your grocery bill. Consolidate All Your Debt Into One Monthly Payment Are you feeling overburdened with debt Are you paying out too much every month for your credit cards, store cards and loans Then why not replace them all with one, lower, convenient repayment through a consolidation loan Reducing Debt Before Its Too Late ... How to avoid the pitfalls of creeping debt. Reducing debt usually isnt a high priority for people until they have already gotten into trouble with overspending. Using a few basic guidelines, and debt calculations, can help you see when your debt load is getting into the danger zone. 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