Anyone drowning in debt may feel compelled to investigate debt consolidation as a path to eliminate their suffering. However, it's important to fully understand how to handle debt consolidation to utilize it successfully. Research different loan rates and budget your finances before jumping into debt consolidation to avoid some of the road blocks to digging yourself out of debt with this method.
Debt Consolidation Loans
Debt consolidation loans wrap up your existing debt under one loan with one interest rate and monthly payment. These are unsecured personal loans that are often advertised at very low interest rates, luring credit card debtors with high interest rates into believing that they will save money through consolidation. Generally, the advertised rates only apply to those with very good credit. However, debt consolidation may be worthwhile for those who have trouble keeping track of various payments.
Secured Debt Consolidation
Another debt consolidation route is to take out a secured loan or line of credit, using your home as collateral. This option is risky for the sole reason that if you fail to pay, you may lose your home. Home equity loans are generally tax deductible, but that doesn't always mean that it's the best option for getting out of debt. Bankrate's home equity debt consolidation calculator will help you figure out whether a home equity loan or line of credit makes fiscal sense for your specific situation.
Credit Counseling
Before you consolidate your debt, it may be a good idea to sit down with a credit counselor to create a plan of action for paying off your debt. With debt consolidation, you need to recognize that you're fighting fire with fire. In other words, you're attempting to get yourself out of debt by taking on even more debt. You need to be 100 percent committed to paying off your debt and keeping it paid off to avoid the temptation of spending on your newly freed credit. By sitting down with a credit counselor, you will be able to create a budget and a time line so that you understand the boundaries you need to stay within to reach financial freedom. Find a reputable credit counselor through the National Foundation for Credit Counseling website.
Considerations
Debt consolidation is not the debt elimination solution for everyone. For those who tend to overspend, paying off debt through budgeting and a payment plan is less risky. People often take on debt consolidation to treat the symptom rather than the root problem of spending more than they make, which is how they end up in more debt as the result of consolidation. Carefully weigh your options to avoid ending up even deeper in debt.
0 comments:
Post a Comment