Taking out a debt consolidation loan can be a responsible decision when you realize that your debts are getting out of hand. However, you will want to also consider other options before you do so. Here are 8 possibilities to consider before taking a consolidation loan.
1) Use what you have to pay your debt. A debt consolidation loan is still another loan that you have to pay. However, a little creative thinking about assets that you already own and can sell goes a long way in creating extra money to pay off the debt. If you have unwanted books, movies, TV’s, tools, or even cars, all these can be sold through Craigslist, Ebay, or the local newspaper. By selling these things you can pay your own debt down faster. Also, if you are a homeowner with a spare bedroom that you can rent, that monthly income could get you out of debt faster then you though.
2) Pay more than the minimum off your credit cards. If you can pay more than the minimum monthly payments you should seriously consider continuing with your existing credit cards and clear the debts over the next 12 to 18 months. While it may mean restricting your spending in other areas it will be the cheapest option long term. Of course you may still opt for debt consolidation to make managing 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) Get a secured loan from a new lender. When you make late payments or miss payments completely, your credit score can suffer. If your credit score is too low for your current mortgage company to give you a refinancing option, a new lender may be able to offer a secured loan at a reasonable rate. In this case, your home would be used as collateral to back the loan. Be aware that this using this option would allow the lender to repossess your house if you miss your payments, so be sure you can make them.
5) A loan secured on other assets. If you have an expensive car, boat or plane you will probably be able to obtain finance using these assets as security. The rate of interest will be higher than a loan secured on property. If you do not have property or it is fully mortgaged securing a loan on other assets may be an option.
6) Consider loan that is unsecured. Although a secured loan will typically have a lower interest rate and can be repaid over a longer period of time, you may not have anything to use as security for a loan. Additionally, you may not want to risk having your property repossessed if you miss a payment. In this case an unsecured loan will be worth considering.
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.
Do your own research of the options. There are many possible courses of action that you could take to get out of debt. Some are better than others, some may be obvious and others can be confusing. Thoroughly research the choices for your own situation before making a final decision. Talking to different lenders and banks may be able to help give you more information so that you can compare your choices. Asking a bank for advice won’t commit you to anything, but it might help you get out of debt.
For a great many people debt consolidation provides an ideal solution to excessive credit card debt. Sorting out debt problems takes a little time, effort and determination. Once you’ve sorted your debts you will find life more enjoyable and relaxing and, with no debt collectors calling or contacting you by post or phone, much less stressful.
If you would like to make a comment, please fill out the form below.
