The Basics of Debt Consolidation
Accumulating debt is very easy nowadays, which makes debt
consolidation that much more important to the everyday consumer.
The basic idea behind debt consolidation is that a consumer
takes out one loan in order to help them pay off a number of
other loans. The advantages of consolidating debt include a
lower interest rate that is often secured, and the simplicity of
dealing with just one loan instead of several.
A first word of warning is to steer clear of debt consolidation
companies. These are the ones that run commercials promising
debt help despite your poor credit. They will charge application
and handling fees that other sources of help would not charge,
and will oftentimes charge up to 23% in interest, which would be
reflected negatively in your credit rating.
Credit cards often charge high rates of interest, which makes
them a popular candidate for debt consolidation. In this case
the process is relatively simple. If you hold several credit
cards with high rates of interest, you can simply transfer their
balances to a single credit card with a lower interest rate.
Many times you will be able to find credit cards offering a low
introductory APR, and oftentimes this introductory rate will
actually be 0% for the first six months.
If you are accumulating credit card debt because you are
constantly spending more than your actual income, then
consolidation will not help in the long run since your credit
card balances will inevitably surmount again. As unappealing as
it is, you may have to force yourself to look long and hard at
yourself in the mirror in order to see that you may have to
change your lifestyle and spending habits in order to fully take
advantage of debt consolidation. Canceling your newly-zeroed
credit cards is a good place to start.
If you are a homeowner then you should look into obtaining a
home equity loan. In this case your home will act as collateral.
So long as your loan is not more than the value of your house
the interest on the loan will be tax deductible. Remember that
if you default on this loan, it is very possible that you will
lose your home.
In other cases of debt, you can find help at your local bank or
credit union in the form of a secured or unsecured loan. The
difference between the two is that a secured loan requires you
to put up property as collateral, while an unsecured loan does
not require any collateral. Needless to say, it will be more
difficult to qualify for an unsecured loan.
Debt
Consolidation