| |
| |
|
|
Debt Consolidation Information |
|
When Your Bills Are Piling Up Here Are 6 Different Ways to Consolidate
When it comes to debt consolidation some people dream of day when all their bills will disappear. Next to hitting the jackpot, a debt consolidation loan is some times the only way out for a debtor. No more playing "pick the bill out of the hat" to see who gets paid, all you have is one affordable check to write each month and pretty soon the balances quickly disappear. WAKE UP! Come back to reality, it isn't quite that easy, however if you do it right it works pretty well. Different Ways to Consolidate People ask me "What's the best way to consolidate debt?" and of course "What's the catch?" Well, it just really depends on the situation. There are all sorts of ways to do it and some folks get really creative too. I'll tell you about some of the more popular ones and the pros and cons you get with them. Just remember because it looks good doesn't mean it is. The advertisers now a days are pretty good about disguising those higher interest loans with payments that go on forever because all you see is the lower payment. So try and ignore that sweet pitch for a lower payment if it means you just dug yourself a bigger hole and put yourself deeper in debt. First things first. Let do a little wake up call. If you are just barely trending water because you are in to much debt, just realize that not all these options will work for you. And some times, no of them will. If that's you, keep your head up high and don't drown. Many people can really cut their debt without ever consolidating. And don't forget, if you do decide to get a debt consolidation loan, don't think the fairy god mother is going to make thing all better. After all, once you do a debt consolidation you will still have to make a payment until that loan is paid off. Home Equity Loans If you have been paying on your home for a couple of years, put a pretty big down payment when you got it and are lucky enough to be in one of those areas of the country where the home values shot through the roof, you may be sitting on little piece of freedom in the form of equity in your home. To get to this little nest egg you either have to sell your home or borrow money against it. And so enters the home equity loan. Another little thought...If you still owe a considerable amount on your home, IGNORE the ads for home equity loans for more than the value of your home. Not only are they very expensive but also very dangerous. And if you are still considering one of those loans Contact Me and I'll be more than happy to give you a hundred thousand reasons not to. If you want to be a stickler about it there are actually two different types of home equity loans. The first, which is my favorite, is the home equity line of credit (HELOC), it uses the equity in you home like a credit card. You can use a little as you want or up to your limit, and once you pay it down enough you can keep on doing it. It's very useful when done correctly because most of them have some sort of interest only option which will give you greater flexibility. Hence, that's why it's my favorite. And the other type is a fixed amount, rate and term. Your payment stays the same all the time. Just to make this simple when I talk about a home equity loan it will refer to both of these types. Many people use home equity loans for debt consolidation. They will often get a pretty good interest rate, and since you can deduct interest payments on their taxes, making the "real" cost even lower. But, of course there is a down side, you must use your home as collateral. Which is just a fancy term to say if you miss your payment I can take your house. And There goes the roof over your head...Literally! Consider a Home Equity Loan for Debt Consolidation if: You won't be leveraging your home so much that you are borrowing pretty close to, or more than, the current market value of your home. You can pay it back in 5 years or less You are in debt because of unusual circumstances, like an unexpected accident or hospital bill, but for the most part you have excellent money management skills. DON'T use a home equity loan for debt consolidation if: You are going to have to borrow 100%-125% of your home's value. Interest rates are high on these types of loans not to mention you will be stuck in your house and won't be able to move for any reason for a very, very long time. Your marriage is on the rocks. Separation and divorce may not make it possible for you to remain living there. Especially if you have a court order to move. Not to mention you would loss a great deal of money if you had to short sell it (You would still have to pay off the mortgage before you can sell it) Now if you think that you are in debt because you just don't make enough money...well, I am surprised you made it this far. With that type of thinking as soon as you pay off your credit cards you will just find another excuse to charge them again, then your home will really be at risk. Credit Cards Consolidating your debt on a credit card comes off as a pretty bad idea; however it can actually be a great resource if done correctly. Credit cards sometimes offer some of the lowest interest rates around and they are easier to acquire than most debt consolidation loans, but the best part is that they don't require collateral like your home equity line does. That is an important thing if a bad situation pops up and catches you unprepared. You can either call your current card company and find out what their interest rates will be on a balance transfer to their card, or if you are like me you get tons of offers in the mail for companies offering to consolidate your debt onto a credit card you can choose the best one. A big warning here...READ THE FINE PRINT! Make sure if you transfer the balance it will help you not hurt you. I give more tips on how to handle this in my FREE newsletter so make sure you sign up. Consider using a credit card for debt consolidation if: You can get a lower interest rate; make sure it is a fixed rate and not just a low intro rate, that's how they get you. Please Read The Fine Print. You never pay the minimum payment, and they tease you with a really low one, and you pay as much as your budget will allow each month to get rid of the debt quickly, after all that's what this is for. You close out the accounts that you are paying off so that you don't go on a shopping spree. A word of caution if you close too many account it will hurt your credit score. Don't use a Credit card for debt consolidation if: You can only get an interest rate that is higher than what you have because you have bad, dinged, or a bruised credit history. You are just so addicted to your credit card that you can't bear the thought of getting rid of one or more of them. You lack consistency in paying your bills on time. All those late fees start to add up pretty quick at $25-$30 a pop, and then you pay 18%-30% interest on the late fees...what a racket! Don't get caught in this little trap. Retirement Loans I'm not going to give a lot of detail on this one because I think it is a bad idea and only should be used to save you from bankruptcy. There are too many big negatives other wise to consider this option for debt consolidation. You loss your tax benefits and may have to pay a penalty if this don't go smoothly for you. Not to mention the big kicker that if you are borrowing money from yourself that means your money is not working for you but against you. Not only that if you lose your job or quit you most likely have to pay off the loan immediately. After you learn a few things about investing you will see quite clearly how this is not such a great option even though it's the easiest to get. Debt Consolidation Loans Even though they may seem to be the best choice or even the most logical, it still may not be your best bet. A debt consolidation loan is an unsecured personal loan, and they can be difficult to get if you already have a lot of debt. The bank doesn't like to give you a loan if you monthly payment on your debt not counting your mortgage is more than 15%-25%, depending on your credit, of your gross monthly income (before taxes). The bank feels like you are just going to go and charge back up your balances, which happens all too often. Because of those big negatives the going interest rate on these types of loans are about 15% or more. These are definitely not the best interest rates compared to the other items we discussed so far. However, if you can get a debt consolidation loan with an interest rate better than what you have right now it may be beneficial for you to get one. Consider a Debt Consolidation Loan if: You are willing to close your credit card accounts so you don't end up in the same trap everyone else does and dig a deeper hole of debt. The interest rate you will be paying is lower than what you are paying right now on any debts that you would consolidate. Make sure the term is not more than 5 years or you could be falling into a different trap altogether and end up paying way to much interest for the term of the loan. Don't use a Debt Consolidation Loan if: the most obvious reason is if the interest rate is way too high. The term of the loan has been extended to 10 or 15 years. It will show you a really cheap payment but wait until you add up all the money you will be paying back you won't consider it a good deal then. Counseling Agencies As the ads on late night TV and cable claim to be able to consolidate your debt i.e. "bills", into one small monthly payment "no matter what your credit history". Every once in a while you these ads are for a home equity loan, but more recently they have leaned to more often promoting credit counseling agencies. Counseling agencies go to the lender and negotiate a lower interest and/or fee. After that you end up making one monthly payment to the counseling agency, Which then pays your creditors. Their fee is lumped into the monthly payment. A lot of times you could have done much better of for yourself if you would have dealt with the creditors personally. This is not really a debt consolidation loan since you don't really refinance anything, it more like debt restructuring. If you can stick with the program you can be out of debt in 3-5 years. The biggest fear people have when dealing with the counseling agencies is that the agencies will ruin their credit. Quite honestly if you are already behind on your bills and haven't been able to put a dent in them, a counseling agency debt consolidation program is not going to make your credit much worse than it already is. It will make your score drop a bit, but when you look at the benefit of being debt free a few years down the line it's a lot better alternative to declaring bankruptcy. Consider debt consolidation with a counseling agency if: You are falling way behind on your bills and there is not another alternative. These kinds of counseling programs are for people who are having problems paying their bills on time, not for people who want a lower interest rate. Most of your debt is not a secured loan. In other words a car loan, home loan, or a student loan. Since there is collateral involved the counseling agency has a harder time renegotiating the terms. Don't do debt consolidation with a counseling agency if: You know yourself better than anyone else if you can't stick to a little program for a week or a few months by all means don't try and do this program that is going to take a few years to complete. You haven't done you due diligence and thoroughly checked out the company. Since they are acting as a mediator and you are paying them they can screw things up really quickly and you will still be held responsible (it really does happen check out the news release section) Make sure you choose an agency that will give you the support you need for the long haul...3-5 years. Protect Yourself Be wary of credit counseling organizations that: -charge high up-front or monthly fees for enrolling in credit counseling or a Debt Management Plan. -pressure you to make "voluntary contributions," another name for fees. -won't send you free information about the services they provide without requiring you to provide personal financial information, such as credit card account numbers, and balances. -try to enroll you in a Debt Managment Program without spending time reviewing your financial situation. -offer to enroll you in a Debt Managment Program without teaching you budgeting and money management skills. -demand that you make payments into a Debt Managment Program before your creditors have accepted you into the program. Creative Alternatives to Debt Consolidation Now it's time to start to use that space between your ears, your brain. Just because none of these options work for you doesn't mean that you should give up! You have made it this far. Borrow against the cash value of your life insurance policy. If you've built up a cash value in your policy, you should be able to tap it at a low rate. Best of all, it doesn't have to be repaid. The downside is that your loan will decrease your death benefit, so make sure you have enough coverage to protect your heirs. (You may want to buy a supplemental term policy.) Make it easy for yourself call all your credit card companies and get them to change the due dates that are more convenient for you so they fall all on the same day right around payday. This way you sit down once or twice a month to do your bills instead of 10 different days. Think of Debt Consolidation as one of the many tools in you arsenal to get yourself debt free. Mical Johnson is affiliated with Rock Financial, Inc., a Licensed Correspondent Mortgage Lender, Florida Department of Finance. Mr.Johnson hosts Home Buyer's Seminars which are open to the public each month in the TampaBay area in Florida. To obtain a free copy of Mr. Johnson's Home Buyer Handbook contact him at http://www.TampaMortgageGuy.com. He is also a contributing author at http://www.Debt-Free-Personal-Finance.com
MORE RESOURCES:
Debt-Consolidation - Google News |
|
|
|
RELATED ARTICLES
4 Debt Reduction Tips If you are overwhelmed by debt, there are options you can take that will help you pay off what you owe without the stigma of filing for bankruptcy. We'll examine four ways you can get your debt under control and start working back on the road to financial recovery. Negotiate Your Way Out Of Debt Eliminating your debt is a daunting task. What can you do to get out of debt fast? Believe it or not, negotiation along with proper financial responsibility is your foothold out of the rat race. Debt Consolidation Mortgage: Home Solutions for Integrating Arrears Credit card debts, auto loans debts, secured loans debts, unsecured loans debts - debts of all sorts and types registered against your name. It is hardly a very promising situation. Debt and New Spirituality Overcoming the stigma of being in dept, grow in self-confidence and regaining ones own centre and balance again, is easy in the new energies. This is all about being true to yourself, what we have been doing in the past is buying into other peoples beliefs and concepts. Open the Cash Vault Inside Your Home Believe it or not, many people do not understand equity and the power it provides.In its purest form, equity is money. Getting the Most Out of Consolidation Loans UK Before letting too much debt or too many payments get the better of you, consider applying for consolidation loans UK.If you're wondering what they are, consolidation loans UK are loans that are designed to "consolidate" debts of various kinds? paying them off with the amount of the loan, leaving the one loan payment in the place of the multiple payments you were having to make before. 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. Debt consolidation loans sound like a good way of getting your debt cleaned up, but are they? If you need help getting out of debt, consider all your options before choosing. 7 Ways to Consolidate Your Debt If you are in debt, you have several options available to you in your quest to consolidate your balances and thereby reducing your monthly payments or paying off your loan faster. Let's look at 7 of the most popular and effective ways for you to consolidate your debt. Debt Consolidation - Free Information About Consolidating Debt Millions of consumers across the globe are searching for a way out of debt. Credit card bills, loans, and other unsecured debts have left many people unable to meet their monthly expenses. The Pros and Cons of Debt Consolidation Loans You are swimming in debt. You have 4 credit cards maxed out, a car loan, a consumer loan, and a house payment. How To Get Rid Of Debt Problems Step 1 -- How To Deal With Your Creditors However far you are along the road of financial/debt problems, the same principles apply to dealing with your creditors.However rude, intrusive, threatening the correspondence/telephone calls FROM your creditors, your correspondence/phone calls TO your creditors must be:* Calm * Brief * Factual * Relevant * To the pointYou must create the impression that you are efficient, knowledgeable and trustworthy. Tracking Down Cheap Debt Consolidation Loans In the modern world of expensive living and high interest rates, it might seem nearly impossible to find cheap debt consolidation loans. If you're one of the people who desperately need one of these loans then there's a good chance that you have less-than-wonderful credit? meaning that you've probably already accepted the seemingly-inevitable fate of paying high interest rates for any loan that you get. Debt Consolidation Confusion Learning about debt consolidation can be quite a confusing venture for your average person. There is plenty of conflicting information to be found about debt consolidation. Use Caution When Entering Into Debt-Consolidation Loan To the person drowning in debt, a debt-consolidation loan looks a lot like a lifesaver. But agreeing to such a loan without understanding it completely could be a serious mistake. Stafford Loan Consolidation Stafford Loan ConsolidationA Stafford Loan, which can help to finance your way through a college or university, comes in two forms:Subsidized Stafford LoansA subsidized Stafford Loan, which you can receive based upon your specific financial aid. When a Stafford loan is subsidized, you are not required to pay any interest on the loan while you attend school. Bad Credit Debt Consolidation Loans - Getting a Debt Consolidation Loan, Even With Poor Credit An online debt consolidation loan allows even people with a poor credit to reduce their overall monthly payments and regain their financial footing. While there are personal loans that allow you to do this, tapping into your home's equity is a better option. Free Yourself Of Debt and Worry with Debt Consolidation Debt consolidation programs can help you lift the burden of excessive debt and potentially save you hundreds of dollars a month. Debt consolidation professionals will work with you and your creditors to design a plan to help you lower your payments and reduce your debts quickly. Debt consolidation - Options for Reducing Credit Card Costs Americans are using credit cards more than at any time in history, and credit card companies are reaping record profits. One of the reasons that the credit card industry is so profitable is that so many of us use our credit cards unwisely. How To Get Rid Of Debt Problems Step 2 -- How To Prepare A Financial Statement Here is how to prepare a financial statement, for the purpose of negotiating reduced payments with your creditors.Secured/Unsecured debts. Pay Off Debt Now: 5 Steps To Getting Your Finances in Order In our world of dizzying change, nothing is more true than the time honored statement that circumstances always change.No where is this more true than with financial issues.
|
|||||||||||||||||||||
