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Debt Consolidation
Is it for you?
Debt consolidation, basically, is taking out one loan to pay off many
others. Debt consolidation is often done to secure a lower interest rate,
secure a fixed interest rate or for the convenience of servicing only one
loan.
Debt consolidation loan may reduce the monthly payments. For example,
if you own a home, you can get a debt consolidation home equity loan. With a
debt consolidation loan you will have to consolidate each of your high
interest credit cards, as well as your consumer loans, into one lower and
affordable monthly payment with lower interest.
You can get a debt consolidation loan even if you do not own a
property, as a personal loan. Personal loan rates usually much higher than
debt consolidation secured by real estate.
Debt Consolidation with home equity as security
Most debt consolidation is secured by your property. The lender will have
lien on your property until you pay the home equity loan in full. Since loan
is secured with property this allows a lower interest rate than without it.
Debt Consolidation to pay credit cards
Debt consolidation is mostly use to pay credit card debt. Credit cards can
carry a much larger interest rate than even an unsecured loan from a bank.
Debtors with property such as a home or car may get a lower rate through a
secured loan using their property as collateral.
Tax deduction and debt consolidation loan
Another possible advantage is that interest you pay on your equity debt
consolidation loan may be tax deductible. (Always consult to your tax
adviser). Credit card payments are not tax deductible.
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Tips for debt consolidation
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Before you borrow money, search several sources. Ask
each one to answer your questions in detail.
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Look for unsecured loan if you plan not to borrow
money against your home.
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The longer the payment time, the more the interest
charges you will end up paying. Calculate different time frames.
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There are some lenders who might offer loan and
after that deferred payment for the first three months. Always keep in
mind that you will still be paying interest on the amount of money you
will borrow.
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Some lenders may charge an early redemption fee if
you pay back a loan early. Try to find out before you borrow if there are
any penalties if it is repaid early.
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There are lenders who might be knocking on your door
(figuratively speaking) offering small loans. You could easily be paying
back huge sums of interest to loan sharks. Be hundred percent sure before
signing for a loan. I know it might be boring but, always go through the
small print.
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Make sure it is the only one you take out if you are
going to consolidate all your loans and debts into one bigger loan. In
this way you can manage a single loan and won't have to worry about
further debts
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To avoid any further temptation if you are in huge
debts, you may want to cancel all or most of your credit cards. If you
cancel them make sure that your credit reports indicates, “account closed
by consumers request”. Discuss this issue with your credit company, before
you cancel them.
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