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Will Debt Consolidation Work For You?It is so easy to get into trouble with debt when an item you wish to purchase or a credit card you wish to own is being offered with no money down and only $20 a month in payments. You may reason that it’s only $20 a month, I can afford that. So, you take on another small payment. But when you have $20 going out in 20 different directions, that adds up to $400 a month. And imagine if those payments are $100 a month instead of $20. You get the idea. Or, maybe you don’t have to imagine it, maybe you’re living it. So, some have sought relief with a consolidation loan that would pay off all the smaller debts with one big loan. Now you have one payment to make per month instead of twenty. With so many people struggling to survive every month amidst their mounting debts, the idea of debt consolidation may bring to mind a vision of hope. This may work for some, but there are some important things to consider before making the decision to seek a consolidation loan.
Debt Consolidation ConsiderationsThe first things to research when considering debt consolidation is what kind of loan you will seek and what kind of company or organization you will seek a loan from. There are two kinds of loans, secured and unsecured. A secured loan is a loan that you have secured repayment of it with some type of collateral like your house, car or other item of value. An unsecured loan is one that is secured based on your good name or good credit. Secured loans usually come with lower interest, but you stand the risk of losing the property you secured it with if your financial situation becomes worse and you default on the loan. But why would your financial situation become worse if you’re consolidating your debt? The temptation many times is to take out more debt since you have replaced so many payments with only one. This is a big mistake and leads to more debt trouble. Finding Debt Consolidation LoansThe different places that you can seek a debt consolidation loan from are banks, finance companies and credit cards. You can also take out a second mortgage, but again you face the issue of losing your home if you are unable to make the payments. If your credit score is good, usually a minimum of 625 or better, you may wish to take advantage of low interest rates offered at a bank. If you must go through a finance company due to bad credit, interest rates will be much higher and the potential for falling victim to a scam is much greater here. Be sure to check out the company you wish to apply to with the Better Business Bureau, read all the fine print, especially concerning hidden fees and ask them how long it will take to pay off your loan. What you might have been able to pay off in 5 years may now take 30 depending on the way the loan is set up. Some credit cards offer you the ability to transfer all your credit card balances over to one for 0% interest for the first six months. This might be one way of effectively consolidating as long as you are not tempted to run the empty cards back up again. Other Debt Consolidation OptionsAnother option for debt consolidation programs that are available are those that are offered through a non-profit organization. Most of these offer credit counseling, debt management and debt consolidation for free. They usually ask for a small monthly donation that is included in your monthly payment. The organization will contact your debtors and creditors and negotiate smaller payments and lower interest rates, thereby reducing your debt quicker with one smaller monthly payment. Again, check out these programs thoroughly with the BBB to make sure they are legitimate. Here are a few links to non-profit debt management companies. ConsolidateCredit.org |
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