Tuesday, August 9, 2016
Debt consolidation consists in a loan which can be used to pay off other loans or credit lines. At first sight this may seem like the perfect option, but there’s more to it than this. Many companies offer debt consolidation quite “easy”, but what you should know is that debt consolidation may cost you even more than you had to pay before it. However, if you are in need this can help you a lot.
Using credit cards (which are unsecured loans) you don’t risk losing your house and at the same time you may get a lower rate than with other types of debt consolidation. There are, however cons to this solution – you may be tempted to use those credit cards the same way you did when you got into debts.
Home equity loans (which are secured loans) can be a good solution because of these facts: you can get low payments, low rates and usually a tax deductible interest. However, you shouldn’t forget that you can lose your house if you can’t pay the loan.
Refinancing your house or your car are both secured loans. In the first case, although your interest rates are very low, your payment may stretch out over 15-30 years. In the second case, your car might break down before you finish with paying the debt.
Debt consolidation loans are unsecured loans because you’re the only one who guarantees your payment. This is why the debt consolidation loan can seem the perfect solution. However, the interest rates can be too high and the repayment term can stretch out over too many years. Another thing you should know when you decide to go for a debt consolidation loan is that you cannot take on any more debt.
Debt settlement has become very popular lately. In this case, what you need to do is to hire a settlement company to which you pay a monthly rate instead of paying your bills. This company will renegotiate your balance with your creditors and get you out of debts in a couple of years. But pay very much attention to the company you choose for these type of services! Scams can be right around the corner waiting for you.
Credit counseling can be a solution. They won’t give you any money, but, instead, they can offer you a good plan to get rid of your debts. The good news is that this type of service is free. Credit counselors are paid by the creditors.
Rapid debt payment is a mathematical debt consolidation plan. You commit to a fixed level debt payment every month, paying more at the first interest rate and less at the following.
Another good idea is to find out about debt consolidation pros and cons before making any decisions that can affect you on a long term.
The pros are:
The fact that you have one payment and one creditor instead of various, making your financial managing easier
You can get rid of taxes due to the fact that you pay your interest on the mortgage
You get to pay less money monthly because you have only one payment and creditor
Depending on the type of debt consolidation you choose, your interest rates can be reduced.
The cons in deciding to get a debt consolidation as the solution to your financial problems are:
Blinded by the “opportunity” you might overlook the fact that you got into trouble because of reckless spending and you can easily return to your money habits once you hold the credit cards.
Regarding those secured debt consolidation loans, you might forget that you can lose everything if you fail to pay in time.
You might get to pay your debt only in a long period of time.
Every time you have a problem someone appears with the so-called “perfect solution”. This is also the case of debt consolidation companies who would say anything to make you their customer. Your despair shouldn’t keep you from having a clear mind when you choose one of the debt consolidation services because there will always be companies which will try to take advantage of your financial situation. What most debt consolidators do is that they promise a low interest rate and a low payment, but in fact, what they really do is this: they build a fee within the monthly payment you make to them – usually 10% of your payment, a payment which they pass on to the creditors and get back a 10% to 15% part. So basically, what you do is that you pay someone else to negotiate for you, when you can easily do it yourself.
However, there are some people that can not manage debt by themselves and can lose a lot if they do not appeal to debt consolidation. Financial problems can be a real headache and, if you have no experience and no managerial skills, then you might want to consider debt consolidation. Therefore, when you think of this solution, you should first consider the reasons that got you in this situation in the first place and then analyze the debt consolidation offers to see which one suites you best.
Posted by joanna at 4:56 AM