7 Hot Tips on Debt Consolidation Loans
You don’t need anyone to tell you that economic times are tough do you? Wages and salaries remain flat and actual take home pay has either gone down or benefits have been chopped, either way you have less to live on. Consumer credit debt is at its highest ever and if you are like millions of others it may be threatening to swamp your financial life. There is a way out but you have to make very careful decisions if you decide to seek a debt consolidation loan.
The idea behind these loans is two fold. First, and most obvious, is to pay off all of your debt using a loan that charges less than what your current creditors do. That’s not all that difficult if most of your debt is credit cards who are charging between 18% to 30%. This stops the collection calls and leaves you with one monthly payment that will be less than you were paying before. The second premise when using a debt consolidation plan is to stop using credit. It does no good to clean up all your bills if you are simply going to start digging that hole again.
So what kind of debt consolidation loans and programs are available? Here’s a list of seven to consider.
1. Home equity loan
If you are a home owner with equity in your house you can take out a debt consolidation loan that will be at a significantly lower interest rate than any unsecured debts that you have. In addition, this loan may be tax deductible as well. The down side is that you are pledging your house to back up the loan as collateral and if you default, you could lose your home.
2. Consolidating student loans
If you have several student loans that are issued by or guaranteed by the federal government you can consolidate them by dealing directly with the government or with the Federal Family Education Loan lender. The two great advantages of doing this are the regulations that fix the maximum interest that can be charged and the fact that there are no upfront fees involved. The one downside is that the loans have to be in a repayment status before you consolidate meaning if you have an undergraduate loan that you are paying and a graduate loan that you are not, you can’t consolidate.
3. Unsecured debt consolidation loans
If you don’t have a home unsecured loans are about the only way you can get a consolidation loan. You have to be really careful in finding a lender and make certain that you understand the interest to be charged and other fees. If you aren’t careful you could end up paying the same or more than you are currently.
4. Professional debt counseling
If you are completely overwhelmed to the point that you can’t get an equity loan or an unsecured loan you can seek out a credit counselor. A trained counselor will help you develop a budget that you can live within and will negotiate with your creditors to get a lower monthly payment or discharge all or part of your debt. The down side is this will probably have an adverse effect on your credit report.
5. Freeze your credit literally
If you have paid off your credit cards using a debt consolidation loan, and your credit card accounts are still active, you want to avoid at all costs using them again until your consolidation loan is paid. To avoid temptation, take your cards out of your wallet or purse, put them in a clear baggies filled with water and pop them into your freezer. These frozen assets will take at least an hour to thaw which gives you a cooling off period to reconsider how badly you really need that infomercial product you just saw.
6. Avoid the debt consolidation scammers
Unfortunately there are unsavory people taking advantage of people with debt who are offering consolidation or settlement services. These organizations have heavy fees and no guarantees. They promise to settle or consolidate debt but their primary concern is collecting fees from the consumer. Always carefully check out any company that is promising to settle debt.
7. Deal direct with your creditors
You aren’t the only one feeling the financial squeeze, millions are which means creditors are facing record setting defaults. Dealing with a creditor directly doesn’t consolidate your debt but it can greatly reduce the amount you owe or reduce the interest rate and fees you pay. Just remember that debt consolidation loans can give you a fresh financial slate but you have to keep it that way. It solves your immediate problem but it does not change your spending habits, only you can do that.
Mark Polman understands consumer credit issues and agrees that if you can consolidate your debt you can save a ton of money. Mark personally knows a lender in the north that offers the best consolidation loans Canada has to offer. Check out their site at Mortgage Canada Rates.
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Tags: Consolidation, Debt, Loans, Tips
