Millions of people in the U.S. are overwhelmingly struggling to get out of debt. Many see debt consolidation as the most feasible debt relief option. It is true that debt consolidation can merge multiple unsecured debts into a single, more affordable debt repayment. This debt management strategy is essentially achieved by getting a low interest loan or entering in a debt repayment plan. But, the debt consolidation approach may not be the best approach for a number of financial situations.
The following tips will also help you determine whether if debt consolidation is suitable to your financial needs:
1. Before trying debt consolidation, verify the APR charge on your most recent credit card statement. If the interest rate is too high, approach the credit card company and ask them if they can lower the interest rate. Generally, credit card companies will consider lowering the interest rates if the cardholder shows an excellent payment history and has only used up 30% or less of their credit limit. But, if you’ve maxed out your credit line, negotiating with your credit card company will be a futile effort.
2. Before applying for a debt consolidation loan, see whether the average interest on your outstanding balances is at least 6% higher than the interest on the prospective consolidation loan. Note: if the interest rate reduction isn’t high enough, the new payment plan will barely make a dent on the existing credit card minimum payments.
3. To determine if you can afford to make the new debt consolidation loan payments, make a list of your income and expenses and see how much of your income can be applied toward the new monthly debt repayments.
4. Determine the duration of the prospective debt consolidation repayment. There are many online financial calculators that you can use to calculate the term and interest charges of the new repayment plan.
5. Compare the services offered by different debt consolidation companies. Before you hire a debt consolidation company, verify their fees as well as what they propose to lower your interest rate charges. This will determine your new monthly payments and the duration of the debt management plan. Some companies charge a monthly fee based on a percentage of the new payments being remitted to the credit card company.
6. A less consolidation option is to take out a home equity loan. This loan approach can pay off high interest debts via a much lower interest rate. Plus, the interest payments on a home equity loan are tax deductible. However, there are a number of variables to digest when trying this option. First of all, you must own a home with a great deal of equity. Secondly, the interest on the home equity loan must be substantially lower than the interest on your credit card accounts. Finally, you need to calculate the duration of the home equity loan repayments against the remainder of your credit card minimum payments. If the potential savings of the loan aren’t significant, it’s not worth the risk, for if you miss a loan payment, your home can go into foreclosure.
Wikipedia is another fine source to research the above topic as well as a Debt Free League financial adviser. You can call them at 1.800.213.9968 and for no cost, they can explain to you the “pros and cons” of debt consolidation and other debt relief options.
Posts tagged ‘debt consolidation’
Although we’re past a recession, countless consumers in California are still desperately struggling to pay off debts and mortgages. It’s appalling that while the Emergency Economic Stabilization Act gave hundreds of billions bailout money to U.S. banks, Californians were denied economic relief. Compounding the problem, already scarce debt consolidation loans aren’t giving needed debt relief to many debt-stricken families. But, if you’re drowning in debt, the San Diego debt relief story of Debt Free League client, Armando Gomez, brings hope.
Two years ago, Gomez, became unemployed, taking whatever odd jobs he could find to feed his family. He also drowned in credit card debt. Unfortunately, both debt consolidation loans and credit counseling plans were no match to his considerable loss in income. The painter used to earn over a $43,000 yearly salary.
NOTE: Consolidation loans, which consolidate multiple debts into one loan, give the borrower a combined monthly payment and lower interest rate, which is essentially the same benefit of a credit counseling debt management plan. However, 75% of consumers that take out debt consolidation loans go deeper into debt. Additionally, according to a Consumer Reports survey, “credit counseling debt management plans have a 79% consumer dropout rate.” Out of the dropouts, some couldn’t keep making the steep debt management plan monthly payments, which similar to or even higher than their minimum payments; others saw they weren’t getting much debt relief in just reducing their interest rates.
Gomez was upside down on his mortgage and couldn’t qualify for debt consolidation loans. Credit counseling was also out of the question. It would merely reduce the interest rate on his debt. This led to another problem, He faced the decision of not paying his credit card bill or skipping a mortgage payment. (According to the Mortgage Bankers Association, “more than 6 million homeowners were either delinquent on their payments or in foreclosure at the end of the third quarter of 2011.” )
Determined to save his home, Gomez defaulted on a $21,976 Bank of America credit card account. If you have ever been delinquent on your credit card bills, you’ll know what happened to him next…
Soon, the nasty collection calls mounted from bill collectors demanding full payment. When calls escalated into legal threats, he could no longer tolerate the unbearable pressure. Luckily, he found the Debt-to-Freedom Plan. Realizing the debt relief service provided by Debt Free League, he saw light at the end of the tunnel. Unlike a CCC debt management plan or debt consolidation loans, he;d be settling his entire debt and saving substantially on both principle and interest.
Gomez followed a debt repayment plan that fit his budget and within months, was able to negotiate a $4,650 settlement. That’s all it took to repay the credit card company and consider his total debt “paid in full.”
Gomez elates, “I learned from my experience not to get into so much debt and I thank Debt Free League very much for helping my family get out of it. I look forward to tell others in a similar situation about their services.” In January, 2012, Gomez completed a journey he thought he’d never reach. Thankfully, now that he’s debt free, he has a new lease on life.
Every person’s financial situation is different. But, graduates of the Debt-to Freedom Plan that complete all of the monthly program payments pay about 50% of their total enrolled balances before fees, or 65% including fees. When compared to repaying at least one and a half times your original debt as a borrower of debt consolidation loans or as a graduate of a credit counseling debt management plan, that’s a remarkable savings.
NOTE: The Debt-to-Freedom Plan provides debt relief for a variety of unsecured debts, including credit cards, signature loans, medical bills, and business debts. Debt Free League (1-800-213-9968 ) is a San Diego debt settlement company with highly skilled negotiators and bilingual (English/Spanish) customer service reps.