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Debt consolidation loan - How to adopt caution
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Debt consolidation loan can be God-sent when you are drowning in debt. However, experts advise caution with debt consolidation loans. For those who are unaware about debt consolidation, it is a loan that can be taken against your home equity to pay off other bills and credit card balances. Many individuals open a new credit card account to consolidate previous credit card debt. However, they fail to close the previous account and now you are stuck with more credit cards to manage with more line of credit which puts you deeper and deeper in debt. Experts advise taking a home consolidation loan since it is the one with low interest. Consolidating loans with new credit card accounts may not be the best idea in the long run.
Debt consolidation - How to avoid the trap
To consolidate debt is a great idea with a trap built into it. The technique described here helps everyone in debt, but if you have an ongoing credit card debt you desperately need this article. * Part I Don't get into debt. Ways to avoid it. * Part II The big advantages of student loan consolidation * Part III This article -------- The Trap ... Read debt consolidation article
Debt consolidation loan - How to adopt caution
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.
Here's the way it's supposed to work: You pay off all your small, high-interest consumer debts with the proceeds of a new, low-interest loan that has a lower payment than the total of the smaller payments. In theory, consolidation is a terrific solution for a burdensome debt situation. In reality, it can force you into even more treacherous waters.
Basically, there are three ways to consolidate:
* A new, low-interest signature (unsecured) loan from an individual, bank or credit union. If you can get it, this type of debt consolidation is ideal.
* Transferring all of the balances to a new credit card. Beware of excessive transfer fees or other troublesome conditions buried in the fine print.
* A home-equity loan. It sounds great to pay off your high-interest debts with money borrowed against your home's equity. But this only increases the stakes. Now if you fall behind, the lender takes your home through foreclosure.
There is one more significant danger that all of these types of consolidation loans have in common. I call it the "doubling effect." If you've ever lost 10 pounds and gained back 20, you'll understand right away. Most people who pay off all their pesky credit card balances look at those zero balances with a sense of personal accomplishment. They've done something remarkable. They didn't really repay their debts, but they enjoy pretending. They say they won't use those accounts again, but they fail to close them.
Statistics indicate that the person who consolidates to a new loan will enjoy the zero balances for a short time, but will eventually charge them back to all-time highs. The average time is two years. That means double the trouble because of the debt-consolidation loan. Before proceeding with any type of debt-consolidation loan, make sure you get honest answers to these hard questions:
* Is the total consideration -- not just the monthly payment -- of the debt-consolidation loan (principal and interest) less than the consideration combined for all the debts it will pay off?
* Are the terms reasonable? If, for example, the new loan or credit card carries significant penalties (you lose the attractive interest rate if you are late with one or two payments), that is not reasonable. If you must pay a big loan origination fee, that is not reasonable.
* Am I mature enough to cancel the accounts that will be paid off in the consolidation process?
Except in extreme cases, the best way to face a load of unsecured consumer debt is to stop adding to it, develop your Rapid Debt-Repayment Plan (you can see a demonstration of how this works at http://www.cheapskatemonthly.com), then buckle down and get to work!
Marc Sylvester is expect based in Edison, NJ . He holds expertise in the banking and finance sector and is a conultant to leading business houses.
You'll be amazed at how quickly you can reverse your debt situation once you know exactly when you will be debt-free. Mary Hunt is the creator of The Cheapskate Monthly newsletter. You can e-mail questions or tips at cheapskateunitedmedia.com or Everyday Cheapskate, P.O. Box 2135 Paramount, Calif., 90723.
http://www.imdollar.com/debt-consolidation-loan/
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Debt consolidation - Your options on reducing debt
Studies show that Americans are now saving less than ever before. Along with that, Americans are carrying a heavier debt load than ever. It's easy for a home loan, a car loan and a few credit card bills to get out of hand, and many people are struggling with more debt than they can easily pay. To make matters worse, new bankruptcy legislation will make it harder than ever to file bankruptcy for those who simply cannot pay their bills.
There are a number of solutions available that allow most people to reduce their interest rate on their debt, reduce their total monthly payment, or both:
Ask for a lower rate on your credit card. If you have been making payments regularly, and you haven't had a history of late payment, you may be able to lower your interest rate on your credit cards simply by calling your credit card company and asking them! It doesn't always work, but the market for credit cards is pretty competitive these days, and many lenders would rather lower your interest rate than lose you as a customer. It's worth asking.
Get a new credit card. If your lender isn't willing to lower your rate, shop around for a credit card with a better interest rate. There is no reason to be paying 20% or more in credit card interest if you don't have to. The interest on credit cards is not tax deductible, but if you can get a credit card with a lower interest rate and you move balances from other cards to that one, you can save quite a bit.
Take out a traditional bank loan with collateral. You can probably obtain a simple installment loan from your bank by putting up cash or investments as collateral for the loan. Like credit cards, the interest isn't tax deductible, but the interest rate may be better than credit cards, and if you consolidate several payments into one with a bank loan, you will lower your monthly payment.
Take out a home equity loan or home equity line of credit. If you have equity in your home, you can borrow up to 80% of your equity in either a lump sum or a revolving line of credit. Interest rates are still quite low on home loans, so this one could be a good way to consolidate your debt. As a bonus, the interest is tax deductible. A minor downside is the fact that these loans usually have application fees and/or closing costs.
Most people can utilize one of the ideas above to help them reduce their debt. If none of these options work for you, you should consider speaking to a credit counselor, who can outline other options that may work for you. Many credit-counseling agencies are non-profit, so it may be worth your while to talk to a credit counselor if nothing else will work.
©Copyright 2005 by Retro Marketing. Charles Essmeier is the owner of Retro Marketing, a firm devoted to informational Websites, including End-Your-Debt.com, a site devoted to debt consolidation and credit counseling, and HomeEquityHelp.net, a site devoted to information regarding home equity loans.
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Debt consolidation loan - How to adopt caution
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