Debt Consolidation Loans and Services
There are thousands of debt consolidation loans and services available to consumers looking for debt relief, but not all options are wise financial decisions. Some debt consolidation options actually put you further into debt, while others may be outright scams. There are legitimate, helpful debt consolidation loans and services out there, but finding them is not easy. That’s where we come in. Our goal is to provide you with helpful, honest, and factual information about available debt consolidation loans and services.
What to avoid when selecting a debt consolidation loan or service
The crushing weight of overwhelming personal debt is uncomfortable at best. It is easy to seek out the most readily available, financial patch you can find when faced with the panic that personal debt creates. This is simply not a wise financial decision. Selecting a quick-fix solution may ease your current discomfort, but it does nothing to solve your long-term financial problems. Many quick-fix loans and services can actually leave you in worse shape financially than before you sought help.
Do the Math
A lower monthly payment may seem very attractive, but you must calculate the extended length of a consolidation loan. Determine the total dollar amount you will pay over the life of the consolidation loan in comparison to your current situation. Calculate total payments for the principal balance as well as the total interest in each situation.
Avoid Shady Companies
Never agree to work with a company that refuses to disclose the full details of the debt consolidation agreement before you provide any personal information. If a company representative avoids answering your questions directly, walk away. Research debt consolidation companies before narrowing down your choices and always ask for references.
Using Home Equity as a Form of Debt Consolidation
A home equity loan is a very serious decision. If an unforeseen circumstance prevents you from fulfilling your loan obligations, you will lose your home. Debt consolidation loans, including home equity loans intended for paying off personal debt, require large amounts of self-discipline and sacrifice to be successful. If you are not ready to overhaul the way you view and spend your money, you are not a good candidate for a debt consolidation loan.
Studies have shown that as many as 70 percent of Americans who turn to debt consolidation loans to pay off credit cards return to their previous level of debt within two years. Many of those individuals end up deeper in debt than when they started out. Most debt consolidation loans come with a very high interest rate. There are lower interest loans available, but only to those with excellent credit ratings. You must exercise great restraint in your spending habits as well as incredible discipline to ensure that your home equity loan is paid in full, on time, each and every month.
Zero Percent Interest Credit Cards as a Form of Debt Consolidation
Zero percent interest credit cards may seem like the perfect solution to your personal debt problems. This may be an excellent solution for a disciplined consumer who can pay off the entire credit card balance quickly. Most zero percent interest credit cards only offer lower interest rates for a small period, and then the interest rates quickly skyrocket. You must read the details of the credit card agreement carefully before selecting this option. Many credit cards require you to make on-time payments to qualify for the continued lower interest rates. Miss a single payment and your interest rate grows to 24% or higher in some cases.
Debt Consolidation Loans
Debt consolidation loans are often easy to obtain, but you pay for that convenience. These loans often come with higher than usual interest rates, especially if they are unsecured. The convenience of making one monthly payment instead of multiple payments to all your debtors is a definite attraction. This type of debt consolidation solution may also help you avoid mounting late fees and over-the-limit charges on each of your credit cards. You must do the math to see if the higher percentage rate of a debt consolidation loan is financially more attractive than your current situation.
Tips for Choosing Debt Consolidation Loans and Services
Some debt consolidation services offer free consultations. Some services, however, will charge you hidden fees and extra charges without your knowledge. It is important to research the fine print of any agreement thoroughly before selecting a debt consolidation loan or service. Also, ask how obtaining this particular type of loan will affect your credit rating. Some debt consolidation loans and services reflect poorly on your credit rating because the full obligation of the debt was not met under the original credit terms.
Getting out of debt requires a drastic change in money management skills. If you pay off your debt using a debt consolidation loan or service but fail to change your spending habits, you will find yourself in need of debt relief again in the near future. Seek out information about money management at your local library and online, enlist in a debt relief educational program, or hire a financial advisor in the beginning of your debt management process.
Debt consolidation loans and services are a good solution for many consumers, but deciding if debt consolidation is right for you is an individual process. Weigh the pros and cons of your current situation against the options available to you and make only informed decisions. Don’t allow panic or frustration to force you into making a hasty decision about your financial future.