Debt consolidation can be an excellent option when you find your finances getting out of control. But before you go out and sign up for a debt consolidation loan, here are the top 8 things to take into account.
1) Selling assets to pay debt should be done first. There may be a way for you to pay your debt without a consolidation loan if you can create more money. This additional money can come from selling assets that you already have and don’t need anymore. Amazon, Ebay and the local newspaper classified ads are a great way to make a few extra bucks from items that you can sell. If you are a homeowner with a large debt, you may even consider selling your house or renting out a spare room.
2) Don’t settle for making a minimum payment on your credit cards. When possible, you should start making larger payments on your existing credit cards above and beyond the minimum payment. Doing so will make a large impact over the course of a year. Although this may mean tightening up on your current spending, it could be a better option and cheaper option than a consolidation loan. However, if you are struggling to make the minimum payments, a debt consolidation loan could make controlling your debt easier.
3) If you are a homeowner, you may be able to save on your mortgage. Interest rates are historically low and by refinancing your current mortgage you may be able to save hundreds of dollars ever month. Additionally, you may be able to obtain additional money that can be used to repay other debts. However, be aware that there may be a prepayment penalty imposed by your current lender when doing this. If so, a second mortgage may still offer a reasonable interest rate while achieving a similar affect.
4) Take out a secured loan with another lender. If you have already missed or been late with any payments, and as a result your credit score is too low for your mortgagor, consider a secured loan with another lender. Secured loans in these circumstances are more expensive and the lenders are quick to repossess your home if you miss payments. Only take this route if you are certain that you can make the repayments.
5) Use other assets to get a secured loan. Although the interest rate on a loan secured by an asset other than real estate is typically higher, it may still be worth it. If you have a car, boat or other expensive asset, you can uses these as security for a loan. This is a possible option if you don’t own any real estate or if your home is fully mortgaged already.
6) Go for an unsecured loan. An unsecured loan might be a good choice if you don’t have any valuable property or do not want to use it as security for the loan. Unsecured loans a generally repaid quicker than secured loans and usually have higher interest rates as well. Therefore you will have to make higher monthly payments on the loan, especially if you have a low credit score.
Low interest credit cards. When your debt is not too high and your credit score is pretty good, you will probably be able to apply for a credit card with a low interest rate or even a 0% rate on balance transfers. A credit card may actually be able to offer a better rate and you would find on any loan. However, be prepared to pay off the balance of during the transfer period or you could end up with an even higher rate.
Learn about the options. The best thing to do before reaching any decision is to thoroughly research each possible choice. One option may be clearly the best, but for many people the various possibilities can be confusing. So, check them all out as best you can. Call different banks or mortgage companies to see what they can do to help you and ask for solid numbers that you can compare. Just asking doesn’t commit you to anything, and they may help you decide the best solution for you.
Debt consolidation can be a great choice for many people when burdened by debt. However, it is not the only solution and getting out of debt will take a little determination, effort and some time no matter what course of action is used. The benefits are worth it though and your life will be much less stressful and enjoyable when you are not overwhelmed by debt.
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