Managing Debt with Debt Consolidation
Sunday, May 3rd, 2009 Subscribe To Our Feed
Today, more Americans are finding themselves in debt than ever before. This is because it is so easy to get into but hard to get out of. Most start out with the intention of building their credit but inadvertently allow the credit cards to get out of control and their spending habits increase with the thought of buying now and paying later.
There are a number of ways to shed your debt. However you should beware of predatory lenders who offer certain types of loans for consolidating your debts. Here are a few things to look for:
- Look for low interest rates. Interest rates and fees that are significantly lower than your current rate can lower your repayments and the time it takes to repay the loan.
- Some loans may impose hidden fees or costs if you pay your loan off early. Before you apply check the fine print to see if you will be stung with penalties for early payoffs.
- Do not expose yourself or others to further debt by using the family home as security for a consolidation loan.
- When consolidating your loans, do not borrow more money than is needed to pay off your current credit cards and loans.
- Watch for lenders who try to persuade you to switch loans. Don’t be fooled by marketing spin on loans that makes them sound better than they are - do your homework and calculate any savings.
- Beware of companies who exploit your financial trouble. Sometimes loan sharks offer consolidation loans at higher interest rates and additional fees and costs when using your home as collateral. If you fail to keep up with repayments and default your home can be seized and sold.
- Be aware of your own spending habits. If you consolidate your debts, you will still need to discipline yourself in order to repay this loan.
There are a number of ways to consolidate your debts:
- Home equity loan – use equity in your home to help pay off your other debts.
- Credit card balance transfers – place all your credit card debts into one low or no interest credit card. Choose credit card balance transfer offers only if your very confident you can clear the debt within the promotional rate period such as 6 or 12 months.
- Debt consolidation loans – Personal lenders are joining the debt consolidation business. By researching the available loans, you can reduce your monthly payments and put money back into your pocket each month.
If you do take out a debt consolidation loan, remember to continue paying as much as possible off the balance. Only paying the minimum payment each month could leave you still paying off your debt in 2037. Ensure your incomings are now greater than your outgoings by creating a household budget you stick to. A budget can put more money in your pocket while paying down debt. You can be debt free much faster by making additional repayments above the minimum repayment amounts.
Article for information only, not financial advice - Written by R. Greenwood of Compare Your Bank.
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