Posts Tagged ‘debt consolidation’

Debt Consolidation

Debt Consolidation is the most common approach to dealing with debt. It comes in many names and forms. Debt Consolidation, Debt Management, Credit Counseling.

At a basic level, they are all forms of debt restructuring with the promise of lowered monthly payments, and reduced or eliminated interest. On the positive side there are many ways to consolidate debt that work more effectively for different people. When looking into a debt consolidation company, it is best to make sure that they consider strategies that are most suitable to your needs.

Here are some common Debt Consolidation Techniques.

Taking out a loan
This strategy is the most sketchy and unfortunately, one of the most frequently used methods of debt consolidation. The idea behind this is simple. You take out a loan equal to your entire debt, pay all of your loans and then make one ‘easy’ payment a month. The lure of this technique is that the interest rate of the principle loan is significantly lower than the interest of all previous loans, and in some cases, this method is effective.

The Down Side
However, two factors prevent this technique from being completely effective. First, depending on how consistently you have been making your monthly payments, there is a high probability that you will not be awarded a loan. Every time you fail to make the minimum monthly payment on credit card debt, that goes onto you credit rating. More often than not, people who seek debt help are already at the point of having missed monthly payments. And if you are awarded a loan it is usually not enough to cover your entire debt, leaving you in essentially the same situation as when you started.

Beware of Scams
Another problem with loans is that debt, and subsequent debt consolidation have become so common place in American society, the flood gates of Debt Consolidation scams have been blown wide open. If you have missed payments, not only are you penalized in terms of credit rating and interest rates, but you have probably been harassed by your creditors or in some cases collection agencies.

Debt weighs on nearly everybody’s conscience, and harassing calls add fuel to the fire of desperation. If you are suffering severe levels of debt related anxiety, you may be willing to do anything to pay these creditors off. This makes you vulnerable to Debt Consolidation Scams, which are variants of the all too common ‘Advance Fee Loan Scam.’ If you come across a loan company offering guaranteed loans at great interest rates with no credit check required, be wary. Most will probably require a application fee upfront. Many people who have sent money to these companies never hear from them again, or are rejected without refund of this fee.

Using Equity
Equity from your house or other real estate can be used to clear your debt. By using equity, the value of your home or property above its purchasing cost is used against your debt. This method is also known as ‘a second mortgage’. Lending institutions are more likely to offer loans, or larger loans to individuals who offer their homes as collateral.

The good news is, is that you are more likely to be able to consolidate all of your debt into to one lump sum, with a lower overall interest rate.

The bad news is, is if you run into debt again, the lending institution can foreclose on your home. If you are normally very good with money and your debt situation is the result of an extraordinary circumstance, (such as illness, lay off, etc.) then the second mortgage can be a viable method of clearing up all your unsecured debt.

However, if it happened once it can happen again. Not to mention it is not uncommon for people to view credit as income. Once the credit cards are cleared up many people feel it is alright to treat themselves to an expensive gift… on their credit cards! Consider the following testimony;

“When my husband and I married, we decided to pool the money from our wedding registry toward a new home. We bought all of our (household)
appliances through credit. Then we decided to have a child and I took time off work.

During this time, my husband was laid off, and soon we were found ourselves unable to make our payments. We confided with one of my cousins who suggested taking out a second mortgage. We tried this and everything seemed to be working. When I went back to work, we thought that we could pay off the second mortgage in no time, so we bought a second vehicle… on credit.

Soon we were buying a new large screen T.V., new clothes, and even financing a trip on credit. The next thing we knew, we had nearly as much debt as before, and a mortgage to pay. And the added income from my job was not enough to cover the balance.”
- Angela, Houston, TX

While using home equity may seem to be an effective way for some people to consolidate their debt effectively, the is a major hidden risk. Unsecured debt, credit card debt for example, for which payments are defaulted for a sufficient amount of time result in a worst case scenario of legal action on behalf of your creditors. Yes, the worst that can result is a through a court order, your creditor can put a lien on your home so that if you sell it, the money would go to them. If you trade this unsecured debt for secured debt, a home equity loan for example, your house if effectively used as collateral, and if payments on this loan are defaulted, you could lose your house! This was nearly the situation that Angela found herself in. But there was a happy ending to her story. Read on to find out.

Should I consolidate my debts?

We’d all like to make managing our finances a little simpler if we could – and if you have a number of debts, one way of doing just that could be by consolidating them into one.

In short, debt consolidation involves paying off existing debts with a new loan (or another form of credit). In doing so, you’ll essentially be grouping (or ‘consolidating’) those debts into one large debt, which can make it easier to keep track of what you owe and how much you’re paying each month, as well as overall.(visit this site for more on debt consolidation)

Besides making your finances a bit easier to control, debt consolidation could also reduce what you pay each month. By choosing a longer repayment period, you can make each payment smaller, which can be very useful if you want to free up money for other things.

The downside to this is that a longer repayment period will also mean more time spent paying interest, and you could pay more as a result. But you could still pay less overall if you’re consolidating high-interest debts into a loan with a lower interest rate.

Different types of debt consolidation

There is more than one way to consolidate debt. Here are two of the most common methods.

Debt consolidation loan
A debt consolidation loan is quite simply a new loan taken out to pay off existing debts. You’ll borrow enough to cover the debts you want to pay off (plus any associated charges), and then you’ll repay the total to your new lender in single monthly payments.

A debt consolidation loan works much like any other personal loan – you’ll have monthly payments that you must meet, so you’ll have to be confident you can afford those payments.

0% balance transfer credit card
Credit cards are becoming increasingly popular for tackling debts. A 0% balance transfer card comes with an interest-free period on debts transferred across from elsewhere. In most cases, you’ll only be able to transfer across credit card debts, but it can make them much simpler and cheaper to repay.

In effect, you’ll be able to repay your debt interest-free for a while. Just make sure you pay it off by the end of the interest-free period if you’re determined to avoid paying any interest at all (although you’ll probably have to pay a balance transfer fee anyway when you transfer them to your new card).

Is debt consolidation the right choice for me?

Debt consolidation could be ideal if you’re managing your debts well but want to simplify your finances. However, anyone who’s really struggling with their finances should avoid it, as the difference it will make to their finances is unlikely to be significant enough to help with underlying financial problems. If you’re struggling, discuss your options with an expert debt adviser.

Why Not Debt Consolidation?

Debt consolidation is a popular approach to managing a burdensome debt load. When most people use the term “debt consolidation”, they mean one thing. Yet, most of the services that offer debt consolidation define it as something quite different.
Loans – Not Necessarily A Good Idea
A loan for $25,000 at 12% interest with a $400 minimum monthly payment sounds a lot better than 30% interest with a $750 minimum payment – on the surface. This is what many financial institutions bank on.

The problem here is obvious. Not many companies will lend you $25,000 without collateral (like a house or other property). In fact, we’ve found that many of our clients are in financial trouble and do not have access to the credit necessary to borrow a large lump sum. The reality is that if you are behind on your payments, it appears on your credit file, and makes it nearly impossible to secure a loan.

As well, if in fact a loan is secured, we’ve found that for many people this extra loan just adds to their current debt load. In a matter of two to three years, the debt increases to where it was, except with this time with much greater consequences.

Equity – Securing Unsecured Debt
Another variation on “debt consolidation” is based on real estate ownership. For example, if your home is worth more than you paid for it, you have equity, and many banks will lend you money against that equity. This process results in little risk to the lender, because if you default, they can force a foreclosure on your property to recover their money.

There is one major problem with borrowing against your equity. In this case, you trade an unsecured debt for a secured debt. The difference is if you default on an unsecured debt, like a credit card balance, the creditor can sue you and obtain a court judgment against you. And yet, they cannot force the sale of your house.

A secured debt, such as a second mortgage, is a far more serious matter, because you’ve pledged your house as collateral.

The fact is: if you default on a debt that has been secured by your house, you risk losing that home.

It’s a risk that is absolutely unnecessary if you instead consider debt negotiation.

What to look for in a debt consolidator

There is perhaps no worse feeling than being mired in debt. Rather than beat yourself up over what led you into debt in the first place, you should actively try to reduce your debt. Often, managing a large debt load can be frustrating and stressful. This is one reason many people who have found themselves in debt have sought the help of debt consolidators to advise them on their debt management options.

What debt consolidators do for you

Debt consolidators are debt management experts that specialize in helping clients manage their debt in order to work towards freeing themselves entirely of debt. They work with your creditors on your behalf in order to devise a plan that will free you of debt.

One of the benefits of working with a debt consolidator is that they have a relationship with a variety of creditors and experience negotiating and reducing debt loads for their clients. In many cases, they are able to reduce your debt load, reduce your interest rates and arrange for a more convenient re-payment schedule that will not leave you losing sleep at night.

With a debt consolidation loan, you should be able to reduce all your monthly payments to various creditors into one solid payment. Check with the debt consolidator on their payment schedule, as a good service will provide daily payments to all your creditors in order to avoid accumulating more debt through late fees.

Furthermore, debt consolidators are able to make those annoying phone calls from creditors cease, and most debt consolidators offer a free consultation so that you can be made aware of your options before you have to start paying for them.

What to look for in a debt consolidator

Because of the overwhelming number of debt consolidation companies available, it is very important that you choose the one that best fits your needs. In order to do this, there are certain features you should look for when choosing a debt consolidator. A debt consolidator should not only be able to reduce your debt load, but educate you in ways to better manage your money so that you will be able to remain debt free in the future.

Good debt consolidators should be able to offer you advice on budgeting and spending as well as saving for the future, while offering you immediate debt relief.

Another feature you should look for in a debt consolidator is professionalism. This encompasses a range of things, including clear answers to your questions, thorough explanations of your options and how each will affect you, and access to your debt progress all the time. Whether through online sources or over the phone, debt consolidators should always be available to answer your questions and review your debt management plan with you.

Like specialists in any field, good debt consolidators should be experts in their field as well. Such expertise comes only with the combination of experience and education, so look for a certified debt consolidator when you are shopping around. Debt consolidators should provide evidence of their certification, and through their knowledge and skill base, be able to provide you with the comfort that your debt has been left in good hands.

Connecticut Debt Consolidation

Boy those credit cards are everywhere, aren’t they? You can get a credit card for almost all occasions, and you can get a card at almost all of your favorite stores making purchases easier, but is that what you really want? Credit cards seem like such a great thing, and they definitely can be. They allow you to have much more financial freedom, and the ability to purchase items when you may not have the cash to do so. Credit cards can be great for your lifestyle if they are looked after properly, but if they are neglected, for even one minute, they can wreak havoc on your life for years to come.

Sometimes people fall into so much debt that they don’t know a safe place to turn. Some people have no problems walking around with debt everyday, but for most people, it can be a large distraction. Debt does not only cause financial problems, but it also places a burden on your personal life, leaving you feeling held down, and controlled by an outside force. There are numerous fashions for diminishing debt, and different ways to help you regain your financial freedom, and get you back on the right track. Connecticut debt consolidation is one of the most popular methods in debt elimination, and can assist in making your life a lot simpler.

Connecticut debt consolidation is one of the most popular methods in debt management due to the fact that it offers a simplistic approach to debt control. It can be used in many different financial situations, and can greatly improve your chances of getting you life back on track. Consolidation starts with a loan, and to what you may be thinking this is not just another loan that will dig your debt hole deeper, this loan has benefits.

Steps To Debt Freedom

Your first step is applying for a loan for the complete balance of all your outstanding debts. This loan is then turned around, and used to pay off all those outstanding balances, leaving your with a much more organized debt load. Benefit here are simple; first, loan officers don’t like to see 6 or 7 different outstanding debts on your credit score, and combining them can immediately improve your appeal to creditors. Whether or not this is a good thing is up to you. Second, you have eliminated much of the stress of having to deal with 6 plus due dates, payments and you wont have to skip any more payments to simply be able to make another one.

You second advantage to Connecticut debt consolidation involves the interest rate. Most credit cards offer you an APR rate of in and around 18%. This means that if you have let’s say $15,000 spread across 4 cards, with 18% on each, and you only make the minimum monthly payments that creditors suggest, you could almost double the cost of your loan with such a high rate, and it could take you up to 20 years to become debt free. When you consolidate, rates will drop significantly, to right in and around the prime rate, dependant on your credit rating, and the company you are dealing with. Consolidation can save you thousands of dollars in interest payment, and can cut down the term of your loan, and can have you out of debt in around 5 to 7 years.

Debt freedom is not a walk in the park. It does take work, and many people don’t realize that you cannot just sit back and watch debt disappear, you do have to put your time in. Start by researching different options for debt assistance. Connecticut debt consolidation is not for everyone, and you may be better off choosing a different debt management program, but you will never know unless you do your homework.