How To Consolidate Debts - Help In A Difficult Economy
The present difficult economy affects each of us differently. Many families are having a difficult time coping and if you find yourself in that group you might well be tempted to borrow more to get those things you feel you must have. There is a cardinal rule which states that you can't borrow your way out of debt, yet all too many try to do just that.
Individual loans each carry a regular percentage of interest on top of the loans that must be paid back in addition to the loan amount. For example, if you purchase a new car for $20,000, typically there is a monthly interest rate of around 1-6 percent added on top of the principal. In essence, you are not paying back just the $20,000 but an additional premium on top of that for interest.
You can take out a loan to help yourself without going even deeper into debt which seems to fly in the face of the rule stated above. If you have a number of loans already such as car payments, credit cards, money due on lines of credit and the like the total monthly payments can become overwhelming and you find yourself robbing Peter to pay Paul. A debt consolidation loan can be the answer here.
Debt consolidation loans are of course a form of borrowing but the difference here is, if done correctly, you borrow no more than you already owe and you pay a lower rate of interest and make lower, possibly much lower, monthly payments. So you haven't gone any deeper into debt and find yourself in a little better position financially than you were before.
The consolidation loan isn't the only option available. You might be able to get the interest rates reduced on existing debts. Reducing credit card interest is one area many people successfully explore. Or, you might consider having the term of a loan extended to reduce monthly payments. This may help in the short term but you have to be careful or you may be paying out even more. Another alternative is to seek help from a qualified third party to get more favorable terms on your outstanding debts.
The most common type of consolidation loan is the home equity loan. If you're not a homeowner you will probably have to seek an unsecured loan which will be harder to find and will probably carry a higher interest rate. Still, you'll be better off if you are successful in finding a good consolidation loan as your monthly payments should be less and living within a sound budget easier.
Making your payments on a home equity loan is a must. It's better to lose your car that to face home foreclosure. If in doubt seek a consolidation loan that does not require putting up your home as collateral. Such a loan, generally an unsecured loan, will be harder to find and will probably a higher interest rate. Do some research and figure out which approach makes most sense to you or seek assistance from a financial adviser.
Whatever you do it's imperative that you structure your household budget to be able to pay off the loan and change your spending habits by avoiding the habit of using credit to pay your way. If you don't do these things you'll soon be back from where you started only worse off. If you to change your habits you have a much better chance of getting through these hard times unscathed.
Individual loans each carry a regular percentage of interest on top of the loans that must be paid back in addition to the loan amount. For example, if you purchase a new car for $20,000, typically there is a monthly interest rate of around 1-6 percent added on top of the principal. In essence, you are not paying back just the $20,000 but an additional premium on top of that for interest.
You can take out a loan to help yourself without going even deeper into debt which seems to fly in the face of the rule stated above. If you have a number of loans already such as car payments, credit cards, money due on lines of credit and the like the total monthly payments can become overwhelming and you find yourself robbing Peter to pay Paul. A debt consolidation loan can be the answer here.
Debt consolidation loans are of course a form of borrowing but the difference here is, if done correctly, you borrow no more than you already owe and you pay a lower rate of interest and make lower, possibly much lower, monthly payments. So you haven't gone any deeper into debt and find yourself in a little better position financially than you were before.
The consolidation loan isn't the only option available. You might be able to get the interest rates reduced on existing debts. Reducing credit card interest is one area many people successfully explore. Or, you might consider having the term of a loan extended to reduce monthly payments. This may help in the short term but you have to be careful or you may be paying out even more. Another alternative is to seek help from a qualified third party to get more favorable terms on your outstanding debts.
The most common type of consolidation loan is the home equity loan. If you're not a homeowner you will probably have to seek an unsecured loan which will be harder to find and will probably carry a higher interest rate. Still, you'll be better off if you are successful in finding a good consolidation loan as your monthly payments should be less and living within a sound budget easier.
Making your payments on a home equity loan is a must. It's better to lose your car that to face home foreclosure. If in doubt seek a consolidation loan that does not require putting up your home as collateral. Such a loan, generally an unsecured loan, will be harder to find and will probably a higher interest rate. Do some research and figure out which approach makes most sense to you or seek assistance from a financial adviser.
Whatever you do it's imperative that you structure your household budget to be able to pay off the loan and change your spending habits by avoiding the habit of using credit to pay your way. If you don't do these things you'll soon be back from where you started only worse off. If you to change your habits you have a much better chance of getting through these hard times unscathed.
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posted by Credit Counseling at
5:03 PM
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