Debt Consolidation is not the Only Alternative!
Debt Consolidation is a Debtor's Dream
With monthly payments and a fixed payment schedule, debt consolidation is a debtor’s dream. You will be able to see an end to those regular payments. Consolidating credit cards and loans is not always that simple. If you have quite a bit of debt, it can be difficult to find a consolidation loan at a low interest rate. Plus, if you are not careful, you can end up more debt.
Consolidating Debt Should Lower Your Costs.
To
achieve this there are two things to bear in mind:
1. Find the lowest interest rate possible.
2. A plan to pay off your debts between three to five years.
Here are some of the best ways to consolidate your debts.
Using Credit Cards
With this method and a good credit rating, you may get a much lower rate than other forms of consolidation loans, since credit card issuers do not require collateral, you are not risking your home on a secured loan. Phone your card issuer and ask what interest rates they will offer you if you transfer your other credit card balances over to theirs. Go for a fixed rate if possible, and request then to waiver any transfer fees. If you can not negotiate a lower rate with your present issuer, shop around for a new card, but be careful as too man applications for credit in a short period of time can damage your credit rating. Once you have consolidated in this way, ensure you establish an optimal payment plan so you can be debt free in three to five years.
Secured Home Equity Loans
With a secured home equity loan, you borrow against the value of you home, less any other mortgages. There are two main types of secured home equity loans (1) A fixed payment for a fixed period, sometimes at a fixed rate, and (2) A Home Equity Line of Credit: you borrow up to an approved credit limit , you can borrow again if you still have money available. These loans can offer attractive interest rates, and lower payments. Most issuers offer no or low closing costs for these loans. Interest rates are usually variable, however, if you do not pay there is the risk that you can lose your home.
Re-mortgage (Cash Out Refinance)
Refinancing your home and taking out money to pay off your credit bills is another way to release the equity in your home. If you can refinance your home at a substantially lower interest rate, you will eliminate the high interest costs of the debts you need to pay off, and you could even come out with a lower payment than you have presently. One option to consider is an interest only loan. By lowering your monthly payments, you can release money to use towards paying down other high rate debts. Ensure you understand the total cost of the refinancing. Take any money you have freed up by paying off other bills and use that to create an emergency savings fund.
Credit Counselling
Debt and credit counselling agencies can help you get out of debt, though they do not actually consolidate your debt. Rather, payment plans (usually with lower interest rates and fees) will be worked out for all of your eligible debts. You will may make monthly payments to the counselling agency, which in turn can pay all your creditors. Participating in a credit counselling programme may not hurt your credit rating, and if you adhere to the plan you can be free of debt within three to six years. But be careful which agency you work with. If the counselling agency pays your bills late, you will pay the price since you are still responsible to the lender.
Debt Settlement
Debt settlement is another option that is becoming increasingly popular with consumers who have lots of debt and can not or will not file for bankruptcy. You stop paying your bills and instead make a regular monthly payments to the credit agency or settlement company. Your creditors contact them, not you, about your overdue payments. As your accounts fall 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 2 years using these programmes. It is not perfect. Your credit rating will be hurt in the short term and you must be certain you are dealing with a reputable company or the money you pay each month could disappear. However, for consumers who can not shoulder the burden of debt they have it can be a very good option.
Retirement Loans
If you have certain types of pension plans, you may be able to borrow against your nest egg. It is easy, with no income qualifications or credit check. You borrow against your retirement account, rather than withdraw from it early so that you do not end up paying taxes. 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.
Rapid Repayment
There is a mathematically and optimal way to settle your debts. You can choose a fixed level monthly payment, then commit to that level every month. You pay as much of it as you can on the highest rate of debt first, while paying the minimum on the rest. I suggest that consumers with debt start by creating one of these payment plans. Many people who do so find they don not 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.
Debt Consolidation Loans
This is an unsecured personal loan, and the only collateral you need to offer for the lender’s security is yourself. Because lenders consider them as risky loans, they are usually more expensive and not easy to get if you have a lots of debt. If the interest rate is too high to make it viable, and the repayment term is 10 - 15 years, you should maybe consider another method of consolidation. However, if the term and interest rate are low enough, this can be a good way to save money. (Check Bankrate.com for current averages). Remember, to calculate the total cost of the loan from start to pay-off.
Overview: The biggest mistakes people make when it comes to consolidation are (1) Not having a plan for paying off the debt after they have consolidated, and (2) Procrastinating - will mean you will end up deeper in debt. Choose your programme and start getting out of debt today !
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