Effective Strategies for Debt Consolidation

Many Americans are in debt and more are going into debt every day due to bad spending habits, unemployment, illness and high costs of gas, food, clothing, utilities and housing. Many Americans don't have enough money to pay even basic necessities and have to resort to using a credit card to buy food and gas. This has caused many Americans to owe thousands of dollars in credit card debt. Luckily there are many options available to eliminate or reduce debt. One option that can be used to eliminate or reduce debt is debt consolidation. Debt Consolidation can be done on your own or by using a debt consolidation, debt management company or bank.

Debt Consolidation works by making one monthly payment to a debt consolidation company which is disbursed or divided among your creditors. This monthly payment is usually lower than the total of your individual creditor accounts.

Debt consolidation through a debt consolidation company usually requires payment of a setup fee and/or monthly fee. Debt consolidation reduces the monthly bill, lowers your monthly interest rate and halts charging late fees.

This can be done by: taking out a home equity loan, a home equity line of credit or a debt consolidation loan from your bank. Using your home's equity will also require payment of fees for the home equity loan or home equity line of credit.

The benefits of using debt consolidation are: reduced monthly payments, reduced finance charges, elimination of harassing calls from creditors, convenience of sending in one monthly payment, pay debt down faster, and freedom from stress, worry, and anxiety causes by being in debt. However, use caution when consolidating debt. Start with credit unions that have more favorable loans and terms and find the option that is right for you.

Debt consolidation should only be used under certain circumstances:

• As a last resort
• If you owe $10,000 or more in debt
• If you have high interest rates and high monthly payments
• If you are having difficulty making payments
• If you are getting overwhelmed with paying multiple debts
• If you were unable to negotiate a lower interest rate

When shopping around for a debt consolidation loan consider the following factors:

• Fees
• Reputation of the company
• Interest rate
• Terms of loan
• Length of loan
• Monthly payment
• Fine print

Consider the following risks: 

• Once you signed up for a debt consolidation loan you can’t change your mind.
• You may have to pay high interest rates and fees if you have bad credit.
• The repayment plan may be longer which will cause you to pay more interest over the life of the loan.
• If you miss a payment you may have to pay penalties and your interest rate could be increased.

 

Practical Tips on Consolidating Debt

                                                                                                    

Many Americans are in debt and more are going into debt every day due to high cost of gas, food, clothing, utilities and housing. Many Americans don't have enough money to pay even basic necessities and have to resort to using a credit card to buy food and gas. This has caused many Americans to owe thousands of dollars in credit card debt. Luckily there are many options available to eliminate or reduce debt. One option that can be used to eliminate or reduce debt is debt consolidation. Debt Consolidation can be done on your own or by using a debt consolidation, debt management company or bank.

Debt Consolidation works by making one monthly payment to a debt consolidation company which is disbursed or divided among your creditors. This monthly payment is usually lower than the total of your individual creditor accounts.

Debt consolidation reduces the monthly bill, lowers your monthly interest rate and halts charging late fees. This can be done by: taking out a home equity loan, a home equity line of credit or a debt consolidation loan from your bank. There are other options for debt consolidation such as: refinance with cash out or refinancing your home for an amount greater than the amount you owe and using the extra cash to pay off debt.

Debt consolidation through a debt consolidation company usually requires payment of a setup fee and/or monthly fee. Using your home's equity will also require payment of fees for the home equity loan or home equity line of credit.

The benefits of using debt consolidation are: reduced monthly payments, reduced finance charges, elimination of harassing calls from creditors, convenience of sending in one monthly payment, pay debt down faster, and freedom from stress, worry, and anxiety causes by being in debt. Home equity loans can also provide tax benefits. However, use caution when consolidating debt.

The disadvantages of using debt consolidation are: the costs of the debt consolidation loan may not be less than what you are currently paying, you could get a higher interest rate if you have bad credit or no collateral to secure the loan, the debt consolidation will be listed on your credit report and may lower your credit score, your credit may become worse if you do business with a non-reputable company, you risk losing your home if you get a home equity loan and miss a payment or make late payments and you may have to pay points for taking out the home equity loan.

It is best to use cautious when considering debt consolidation. Comparison shop to find the best deal. Start with credit unions that have more favorable loans and terms and find the option that is right for you.

Think Twice About Transferring Credit Card Debt

Credit card companies make it so easy to transfer one credit card balance to another and at the time it may seem like the best option, but use caution. Transferring your balance from one card to another is basically the same as consolidating your debt without actually going through the process of a formal debt consolidation loan. Transferring balances may actually lower your credit score because it could be an indication that you are unable to manage your money and need to transfer your balance to make it easier to pay your debts.

The only reason you should transfer one credit card balance to another card is to save money and reduce your total debt owed. To take advantage of the low introductory you must pay off the full balance before the introductory rate special ends. If you are unable to pay off the balance before the introductory rate ends the balance transfer is not worth it. Do some comparison shopping before selecting a credit card that offers an introductory balance transfer rate. Two good sites to use when comparison shopping are bankrate.com and cardreport.com.

You may end up in more debt than you originally owed due to the guidelines of the new low interest credit card. To pay the new balance off faster you must pay more than the minimum monthly payment; try to pay at least double the minimum monthly payment. Here are 9 tips to use when considering transferring debt to another credit card.

1. Find out the APR or interest rate of the new card, if the interest rate is too high don't transfer the debt.

2. Ask if you will be charged a fee for transferring your balance, if there is a charge shop around for another credit card.

3. Find out what the guidelines are for the new card.

4. Find out how long the balance transfer will take and make sure you continue to make payments on the old account until the transfer is complete.

5. Check your monthly statement to verify that your old credit card company is reporting your balance as zero. But don't be tempted to charge on the old account.

6. Check your monthly statement on your new credit card to verify the balance is reported correctly. If not, write a letter to have your account balance updated.

7. Some companies offer transfer checks that can be used to transfer balances. Some companies charge a fee for using the transfer checks so keep this in mind when adding up all the fees that can come along with transfer of an old balance to a new credit card.

8. Ten percent of your credit score considers new accounts and your score may decrease as a result of opening the new account. If you decide to close the old account, the account was in good standing and you had the account for at least 2 years closing it could decrease your credit score.

9. If you know your credit score from each of the three major credit bureaus Equifax, Experian and TransUnion call each bureau and ask how transferring your balance to a new card will affect your score.

How to Consolidate Debt

Many Americans are in debt and more are going into debt every day due to high cost of gas, food, clothing, utilities and housing. Many Americans don't have enough money to pay even basic necessities and have to resort to using a credit card to buy food and gas. This has caused many Americans to owe thousands of dollars in credit card debt. Luckily there are many options available to eliminate or reduce debt. One option that can be used to eliminate or reduce debt is debt consolidation. Debt Consolidation can be done on your own or by using a debt consolidation, debt management company or bank.

Debt Consolidation works by making one monthly payment to a debt consolidation company which is disbursed or divided among your creditors. This monthly payment is usually lower than the total of your individual creditor accounts.

Debt consolidation reduces the monthly bill, lowers your monthly interest rate and halts charging late fees. This can be done by: taking out a home equity loan, a home equity line of credit or a debt consolidation loan from your bank. There are other options for debt consolidation such as: refinance with cash out or refinancing your home for an amount greater than the amount you owe and using the extra cash to pay off debt.

Debt consolidation through a debt consolidation company usually requires payment of a setup fee and/or monthly fee. Using your home's equity will also require payment of fees for the home equity loan or home equity line of credit.

The benefits of using debt consolidation are: reduced monthly payments, reduced finance charges, elimination of harassing calls from creditors, convenience of sending in one monthly payment, pay debt down faster, and freedom from stress, worry, and anxiety causes by being in debt. Home equity loans can also provide tax benefits. However, use caution when consolidating debt.

The disadvantages of using debt consolidation are: the costs of the debt consolidation loan may not be less than what you are currently paying, you could get a higher interest rate if you have bad credit or no collateral to secure the loan, the debt consolidation will be listed on your credit report and may lower your credit score, your credit may become worse if you do business with a non-reputable company, you risk losing your home if you get a home equity loan and miss a payment or make late payments and you may have to pay points for taking out the home equity loan.

It is best to use cautious when considering debt consolidation. Comparison shop to find the best deal. Start with credit unions that have more favorable loans and terms and find the option that is right for you.