by: Gerri Detweiler
Next to winning the lottery, a debt consolidation loan is a debtor’s dream. With one monthly payment and a fixed monthly payment schedule, you can actually see an end to those monthly payments.
In reality, consolidating bills isn’t always easy. If you have a lot of debt, it can be hard to find a consolidation loan at a lower interest rate. And if you’re not careful, you can end up deeper in debt than when you started.
Your goal in consolidating your debt should be to lower your overall costs. To accomplish this there are two things to keep in mind:
1. Get the lowest interest rate possible
2. Have a plan to pay off your debts in 3 – 5 years.
Here are some of the best ways to consolidate:
Using Credit Cards
The good news about this method is that with a good credit rating, you may get a much lower rate than other forms of consolidation loans. And since credit card issuers don’t require collateral, you aren’t “risking the farm.”
Call your current issuer to ask what interest rates they will offer you if you transfer balances from other cards over to theirs. Go for a fixed rate if you can get it, and ask them to waive any transfer fees. If you can’t negotiate a low rate with your current issuer, try shopping for a new card at a site such as CardRatings.com. But be careful! Too many applications for credit in a short period of time can hurt your credit rating.
Once you do consolidate this way, be sure to set up an optimal payment plan so you can be debt-free in 3 – 5 years.
Home Equity Loans
With a home equity loan, you borrow against the value of you home, minus any other mortgages. The two major kinds are: 1. A Home Equity Loan – a fixed amount of money for a fixed period of time (sometimes at a fixed rate) and 2. A “Home Equity Line of Credit” where you borrow up to a pre-approved credit limit (interest rates usually variable) and can borrow again if you still have money available.
These loans can offer attractive rates, low payments, and the interest is usually tax-deductible if you itemize. Many issuers offer no or low closing costs for these loans. Interest rates are often variable, however, and there’s always the risk that you can lose your home if you can’t pay.
Cash Out Refinance
Refinancing your home and taking out money to pay off bills (called “cash-out refinance”) is yet another way to tap the equity in your home. If you can refinance at a substantially lower interest rate, you’ll eliminate the high interest costs of the debts you pay off, and you could even come out with a lower payment than you have right now since rates are so low.
One option to consider: an interest-only loan. By lowering your monthly payment, you can free up money to use toward paying down other high-rate debt or building a retirement fund.
Make sure you understand the total cost of refinancing. Take any money you’ve freed up by paying off other bills and use that to create an emergency savings fund.
Traditional Debt Consolidation Loans
A debt consolidation loan is an unsecured personal loan, and the only collateral you are offering for the lender’s security is you. Because lenders consider them risky loans, they’re usually more expensive and not always easy to get if you have a lot of debt.
If the interest rate is too high to make it worth it and the repayment term is ten or fifteen years, you should probably consider another method of consolidation. However, if the term and interest rate are right, this can be a great way to actually save money in the end. (Check Bankrate.com for current averages). Remember, to calculate the total cost of the loan from start to pay-off.
Credit Counseling
Credit counseling agencies may help you get out of debt, though they don’t actually consolidate your debt. Instead, payment plans (usually with lower interest and fees) will be worked out for all of your eligible debts. You’ll make one monthly payment to the counseling agency, which will pay all your creditors.
Participating in a credit counseling program generally won’t hurt your credit rating, and if you stick to the plan you can be out of debt in three to six years. But be careful which agency you work with. If the counseling agency pays your bills late, you’ll pay the price since you’re still responsible to the lender. It happens.
Debt Settlement
Debt settlement is another option that’s become increasingly popular with consumers who have a lot of debt and can’t, or won’t, file bankruptcy. You stop paying your bills and instead make a regular monthly payment to the settlement company. Your creditors contact them, and not you, about your overdue bills. As your accounts fall further behind, the negotiation company will settle your balances – usually for 50% of the balance or less (including fees) depending on the debt. Most people can be out of debt in less than two years or less using these programs.
It’s not perfect. Your credit rating will be hurt in the short run and you must be certain you’re dealing with a reputable company or the money you pay each month could disappear. Still, for consumers who can’t shoulder the burden of debt they have now, it can be a very good option. Retirement Loans
If you have a 401(k), 403(b) plan or certain types of pension plans, you can borrow against your nest egg. (You can’t borrow against your IRA.) It’s easy, with no income qualifications or credit check.
The key here is to borrow against your retirement account, rather than withdraw from it early so that you don’t end up paying taxes and a 10% penalty. Also, if you leave or lose your job, you may have to pay your loan back immediately or pay taxes and penalties for an early withdrawal.
These loans typically offer low interest rates, and interest is paid to you, since you are the lender. While tapping your next egg like this can short-change your retirement, so can costly debt payments. If you are in your 20’s and 30’s, you obviously have more time to rebuild a retirement nest egg, but even if you’re in your 40’s or 50’s, you will want to weigh the cost of paying the high interest of the debts over time, versus borrowing from your retirement account. The return you get from paying off high-rate debts is guaranteed – while the stock market isn’t.
Rapid Repayment
There is a mathematically optimal way to pay your debts. Choose a fixed level monthly payment, and commit to it each month. Pay as much as you can on the highest rate debt first, while payment the minimums on the rest.
I almost always suggest consumers with debt start by creating one of these plans. Many people who do so find they don’t even need to consolidate to get out of debt in the next few years. They just need a plan and they can do it on their own.
Overview
The biggest mistakes people make when it comes to consolidation are:
1. Not having a plan for paying the debt off after they’ve consolidated, and
2. Procrastination. Waiting for the “perfect” solution to come along almost always means you’ll end up deeper in debt. Choose your approach, and start getting out of debt today!
For more information on dealing with debt, visit www.stopdebtcollectorscold.com.
Copyright 2003 by Gerri Detweiler, all rights reserved.
About The Author
Gerri Detweiler is considered one of the country’s top credit experts. She has been interviewed in thousands of radio, television and print news stories including USA Today, The Wall Street Journal, The New York Times, Dateline NBC and many others. She has testified before Congress several times and worked on reform of the national credit reporting laws.
Wednesday, November 29, 2006
Saturday, November 25, 2006
Consolidate And Live Debt Free
by: Christopher Luck
Are your credit cards in charge of your life? Are you living payday to payday with no end in sight? Making large payments but not making much of a dent on your principal balance? It may be time to consolidate and live debt free.
Debt free living opens up so many possibilities for using your money more wisely. The money once used to make monthly bill payments can go toward college funds and retirement savings. It can be used for investments and cash to use on travel and recreation.
The first step toward living debt free may be to consolidate your current indebtedness. There are several methods to consolidate your bills and each once requires careful examination before taking the plunge. Before making the first move to consolidate it is important, however, to be fully aware of your credit history and current credit (FICO) score. Only when you know as much about yourself as your creditors do can you make wise decisions about your finances and begin to live debt free.
FICO scores range from 400 to 800. Scores above 720 designate excellent credit. Scores below 550 are considered sub par. Even a score below 600 can make it more difficult to consolidate. Beneath this range will make interest rates and fees higher. Pull your credit report from all three credit reporting agencies (Experian, TransUnion and Equifax). Receiving one free credit report each year is mandated by law. You can purchase your credit score online for a nominal fee. When requesting these reports be wary of any sites that ask for billing information before allowing you to access your free credit report. Make sure you are not signing up for any monthly updates that will be charged to your credit card. Remember, the idea is to live debt free after you consolidate your current bills.
Once you are aware of exactly how much you owe and how you are viewed by the credit community it is time to look at your options to consolidate. If you own your own home and it has accumulated equity you might consider a home equity debt consolidation loan. If your credit is relatively good you might consider a debt consolidation loan from a loan company or consolidating all of your debt onto one loan interest credit card. However, if your credit card debt has accumulated to the point where it has affected your credit, you may need to think about a debt consolidation loan through a service for people with damaged credit. Some of these services also offer credit counseling.
Debt free consolidation through a home equity loan has the advantage of being relatively easy to arrange. Any homeowner who has allowed equity to build in his/her property should find an ample supply of agents willing to broker a consolidation loan. All of the home owner’s outstanding credit card bills can be rolled into the mortgage amount as long as the total does not exceed a certain percentage of the home’s value.
Persons with good credit may also apply for a consolidation loan which will have a lower interest rate and, therefore, a lower payment than the total payments being made on all the credit card debt combined.
For those with sub par credit debt consolidation loans may also be the answer. However, the interest rate will not be as low as that for consumers with a higher credit score. Still, the payment may be less than the total of the payments made previously.
In the current culture it is the rare individual who can be totally debt free http://www.pearlvalleypress.com/category/finance-reviews. Most people will always have at least a mortgage payment with which to contend. However, the fewer monthly bills – especially high interest revolving credit – the better. No matter how you choose to consolidate and become debt free it is important to eliminate your previous credit card habits. Cutting up all but one credit card is highly advisable. Select the credit card with the best overall package and secure it in a safe place for use in a pinch. Now you are on your way to a debt free lifestyle.
About The Author
Christopher Luck
If you would like the latest debt consolidation secrets you may visit my consolidation blog which is updated multiple times a day! http://www.consolidatedebtfreeguide.info.
Are your credit cards in charge of your life? Are you living payday to payday with no end in sight? Making large payments but not making much of a dent on your principal balance? It may be time to consolidate and live debt free.
Debt free living opens up so many possibilities for using your money more wisely. The money once used to make monthly bill payments can go toward college funds and retirement savings. It can be used for investments and cash to use on travel and recreation.
The first step toward living debt free may be to consolidate your current indebtedness. There are several methods to consolidate your bills and each once requires careful examination before taking the plunge. Before making the first move to consolidate it is important, however, to be fully aware of your credit history and current credit (FICO) score. Only when you know as much about yourself as your creditors do can you make wise decisions about your finances and begin to live debt free.
FICO scores range from 400 to 800. Scores above 720 designate excellent credit. Scores below 550 are considered sub par. Even a score below 600 can make it more difficult to consolidate. Beneath this range will make interest rates and fees higher. Pull your credit report from all three credit reporting agencies (Experian, TransUnion and Equifax). Receiving one free credit report each year is mandated by law. You can purchase your credit score online for a nominal fee. When requesting these reports be wary of any sites that ask for billing information before allowing you to access your free credit report. Make sure you are not signing up for any monthly updates that will be charged to your credit card. Remember, the idea is to live debt free after you consolidate your current bills.
Once you are aware of exactly how much you owe and how you are viewed by the credit community it is time to look at your options to consolidate. If you own your own home and it has accumulated equity you might consider a home equity debt consolidation loan. If your credit is relatively good you might consider a debt consolidation loan from a loan company or consolidating all of your debt onto one loan interest credit card. However, if your credit card debt has accumulated to the point where it has affected your credit, you may need to think about a debt consolidation loan through a service for people with damaged credit. Some of these services also offer credit counseling.
Debt free consolidation through a home equity loan has the advantage of being relatively easy to arrange. Any homeowner who has allowed equity to build in his/her property should find an ample supply of agents willing to broker a consolidation loan. All of the home owner’s outstanding credit card bills can be rolled into the mortgage amount as long as the total does not exceed a certain percentage of the home’s value.
Persons with good credit may also apply for a consolidation loan which will have a lower interest rate and, therefore, a lower payment than the total payments being made on all the credit card debt combined.
For those with sub par credit debt consolidation loans may also be the answer. However, the interest rate will not be as low as that for consumers with a higher credit score. Still, the payment may be less than the total of the payments made previously.
In the current culture it is the rare individual who can be totally debt free http://www.pearlvalleypress.com/category/finance-reviews. Most people will always have at least a mortgage payment with which to contend. However, the fewer monthly bills – especially high interest revolving credit – the better. No matter how you choose to consolidate and become debt free it is important to eliminate your previous credit card habits. Cutting up all but one credit card is highly advisable. Select the credit card with the best overall package and secure it in a safe place for use in a pinch. Now you are on your way to a debt free lifestyle.
About The Author
Christopher Luck
If you would like the latest debt consolidation secrets you may visit my consolidation blog which is updated multiple times a day! http://www.consolidatedebtfreeguide.info.
Wednesday, November 22, 2006
Seven Ways to Consolidate Your Debt
by: Jeff Dragt
When it comes to debt consolidation the first thing you want to do is consolidate your debt, but the first thing you should consider are all of your options. There are in fact more options and help out there than you imagined and just because you are in debt does not mean the situation is hopeless so get up and take charge of your credit rather than letting your creditors take charge of you.
Debt Consolidation Tip #1 Renegotiate With Your Primary Lender
For some reason when individuals are in debt all they want to do is avoid their lenders’ phone calls rather than calling them and trying to work out new terms and asking for some help. There is help available and primary lenders will frequently offer assistance or even renegotiate terms in the event an individual is behind or struggling with payments. In this situation the last thing you want to do is avoid your lender’s phone calls because this will only make the situation worse and negatively impact your credit even more. What you want to do is immediately call your lender or make an appointment when you know your payment is going to be late or if you are struggling with payments. Be upfront and tell your lender the situation and that you want to renegotiate. This of course does not have a 100% success rate, but since your lender will lose money if you default they are more likely to renegotiate and grant you some of the relief you need to make your payments. However, if you never ask you will never know so go ahead and call your lender and see if you can work something out. Making this your first step may very likely negate any of the following steps if it is successful. If not, then you have six more options to consider.
Debt Consolidation Tip #2 Non-profit Credit Counseling Agency
There are a wide variety of credit counseling agencies out there including for profit and non-profit. If you are already in debt and having difficulties meeting your obligations then you should definitely seek out a not for profit credit counseling agency. These agencies have helped millions of individuals get their credit under control and will be able to help you as well. The way these agencies work is you provide them with all of your creditors’ information and the agency calls and negotiates lower payments and/or interest rates. Then you pay a fixed amount to the agency each month and the agency divides up the payments among your creditors. This will keep you on time with all of your creditors and help you get your credit back on track.
Debt Consolidation Tip #3 Credit Card Transfers
This is an option for individuals who have good credit, but are starting to become overwhelmed with their monthly fees as well as interest rates. In this situation the individual should seek out other credit cards with offers of no interest or extremely low interest for a period of time. Then, once they receive the credit card they simply transfer the full amount of their other credit card’s balance. This way the individual will avoid paying the high interest, but for this to work the individual must be disciplined enough to pay off the full balance of the credit card in the introductory period of no or low interest. If not, then this option will not be of much help. However, if you are truly dedicated and committed it is an easy and fast way of handling your credit problems yourself and avoiding paying high interest rates.
Debt Consolidation Tip #4 Borrow from Retirement
When completely over your head in debt you always have the option of borrowing from your 401(k) plan. Most employers will allow employees to do this, however this should be one of your last options. There are some drawbacks to this option, however. If you cannot pay the loan back in full to your 401(k) or other retirement fund then you will be charged a variety of fees and taxes by the IRS, which is never good. Also, if you are fired or leave your job the loan will be due immediately. In addition to this, the interest is not going to be tax deductible during the time of the loan. If you have a 401(k) plan and your employer will allow you to take a loan from it, then you should do so as long as you know you will be able to pay it back as quickly as possible.
Debt Consolidation Tip #5 Life Insurance
You may borrow against your whole life insurance policy as well. This option allows you to take out a loan against the full value of your whole life insurance policy and while there is no time limit in which to pay the loan back you will certainly want to do so because if you do not pay it back the total value of the loan will be subtracted from your insurance benefits, which goes against the reason you have life insurance in the first place. This is a great option if you are disciplined enough to pay it back.
Debt Consolidation Tip #6 Home Equity Loans
If you own your home and have equity built up then you may qualify for a home equity loan. This will allow you to pay off all of your debts immediately, however you will still be required to make a monthly mortgage payment. The drawback to this option is if you cannot make your monthly payments you will risk losing your home. Only consider this option if you are sure you will be able to meet your monthly loan payment obligations.
Debt Consolidation Tip #7 Credit Unions
Credit unions are typical in the fact that they offer low interest loans. So, if you are a member of a credit union see what options you have for loans and their respective interest rates. This could be a great way to get a loan with low interest rates and fees that will allow you to pay off all of your existing debt and then pay a low monthly payment on the loan.
About The Author
Jeff Dragt
For more help and information please visit Consumer Debt Services. www.consumerdebtservices.com
When it comes to debt consolidation the first thing you want to do is consolidate your debt, but the first thing you should consider are all of your options. There are in fact more options and help out there than you imagined and just because you are in debt does not mean the situation is hopeless so get up and take charge of your credit rather than letting your creditors take charge of you.
Debt Consolidation Tip #1 Renegotiate With Your Primary Lender
For some reason when individuals are in debt all they want to do is avoid their lenders’ phone calls rather than calling them and trying to work out new terms and asking for some help. There is help available and primary lenders will frequently offer assistance or even renegotiate terms in the event an individual is behind or struggling with payments. In this situation the last thing you want to do is avoid your lender’s phone calls because this will only make the situation worse and negatively impact your credit even more. What you want to do is immediately call your lender or make an appointment when you know your payment is going to be late or if you are struggling with payments. Be upfront and tell your lender the situation and that you want to renegotiate. This of course does not have a 100% success rate, but since your lender will lose money if you default they are more likely to renegotiate and grant you some of the relief you need to make your payments. However, if you never ask you will never know so go ahead and call your lender and see if you can work something out. Making this your first step may very likely negate any of the following steps if it is successful. If not, then you have six more options to consider.
Debt Consolidation Tip #2 Non-profit Credit Counseling Agency
There are a wide variety of credit counseling agencies out there including for profit and non-profit. If you are already in debt and having difficulties meeting your obligations then you should definitely seek out a not for profit credit counseling agency. These agencies have helped millions of individuals get their credit under control and will be able to help you as well. The way these agencies work is you provide them with all of your creditors’ information and the agency calls and negotiates lower payments and/or interest rates. Then you pay a fixed amount to the agency each month and the agency divides up the payments among your creditors. This will keep you on time with all of your creditors and help you get your credit back on track.
Debt Consolidation Tip #3 Credit Card Transfers
This is an option for individuals who have good credit, but are starting to become overwhelmed with their monthly fees as well as interest rates. In this situation the individual should seek out other credit cards with offers of no interest or extremely low interest for a period of time. Then, once they receive the credit card they simply transfer the full amount of their other credit card’s balance. This way the individual will avoid paying the high interest, but for this to work the individual must be disciplined enough to pay off the full balance of the credit card in the introductory period of no or low interest. If not, then this option will not be of much help. However, if you are truly dedicated and committed it is an easy and fast way of handling your credit problems yourself and avoiding paying high interest rates.
Debt Consolidation Tip #4 Borrow from Retirement
When completely over your head in debt you always have the option of borrowing from your 401(k) plan. Most employers will allow employees to do this, however this should be one of your last options. There are some drawbacks to this option, however. If you cannot pay the loan back in full to your 401(k) or other retirement fund then you will be charged a variety of fees and taxes by the IRS, which is never good. Also, if you are fired or leave your job the loan will be due immediately. In addition to this, the interest is not going to be tax deductible during the time of the loan. If you have a 401(k) plan and your employer will allow you to take a loan from it, then you should do so as long as you know you will be able to pay it back as quickly as possible.
Debt Consolidation Tip #5 Life Insurance
You may borrow against your whole life insurance policy as well. This option allows you to take out a loan against the full value of your whole life insurance policy and while there is no time limit in which to pay the loan back you will certainly want to do so because if you do not pay it back the total value of the loan will be subtracted from your insurance benefits, which goes against the reason you have life insurance in the first place. This is a great option if you are disciplined enough to pay it back.
Debt Consolidation Tip #6 Home Equity Loans
If you own your home and have equity built up then you may qualify for a home equity loan. This will allow you to pay off all of your debts immediately, however you will still be required to make a monthly mortgage payment. The drawback to this option is if you cannot make your monthly payments you will risk losing your home. Only consider this option if you are sure you will be able to meet your monthly loan payment obligations.
Debt Consolidation Tip #7 Credit Unions
Credit unions are typical in the fact that they offer low interest loans. So, if you are a member of a credit union see what options you have for loans and their respective interest rates. This could be a great way to get a loan with low interest rates and fees that will allow you to pay off all of your existing debt and then pay a low monthly payment on the loan.
About The Author
Jeff Dragt
For more help and information please visit Consumer Debt Services. www.consumerdebtservices.com
Subscribe to:
Posts (Atom)