Many consumers enmeshed in a debt trap bank on debt consolidation and management as the convenient solution to wipe out their financial obligations. Before embarking on this route, you must realize that not all cases would benefit from this debt solution. Consider three ways of obtaining debt consolidation and see if they can apply to you.
Debt Consolidation and Management Through Credit Card at 0% Interest
Credit card companies offer zero percent or single digit interest rates to lure credit card holders to substitute their current credit card company with theirs. But take note that these low interest rates only apply for a certain period of time, after which it expires. Securing debt consolidation and management via this option is suitable for debtors with a relatively good credit record since companies may limit this offer to them.
Before you jump on this option, make sure to find out the period covering the low interest offer and how much the regular interest rate would be when the low rate expires. This option would be best if you can afford to pay off your consolidated debt within the low-interest-rate period. If you still owe the credit card company when the interest rate surges, you may find yourself in a tighter spot. Before this sweet period expires, transfer your remaining balance to another credit company offering low interest rates. Although keep in mind that jumping from one credit card company to another every six months may scar your credit score.
Also, make sure to pay more than the monthly minimum dues to inch your way to being debt-free. A single overdue will cut short the zero or low interest rates. Read the fine print and beware of hidden fees and charges that can render your actual payments higher than with your previous creditors. It would be best not to use your plastic card for more expenses, especially unnecessary ones.
Debt Consolidation and Management Through A Debt Consolidation Loan
A common way of merging your debts into one manageable account is by securing a debt consolidation loan. This is often recommended by many debt consolidation and management companies. You obtain one substantial loan to settle all your debts. Instead of paying several creditors in a month, you can conveniently make one single payment each month. This sounds so easy. But just like when transferring your credit balance to another credit card company, make sure that the interest rate of the debt consolidation loan is lower than those with your previous creditors and that you can afford to make the monthly payments. Look for the lowest interest rates being offered. You may find lower rates and better terms from credit unions as compared to local banks. Make sure to be informed about other charges and add them up when comparing with the cost of credit you have been paying your current creditors. Again, the affordability of credit will depend on your credit status. That is why, oftentimes, this option just would not work for many consumers with serious debt problems. Another way to lower interest rates is by securing your loan with a property. This takes us to the third option.
Debt Consolidation and Management Through Home Equity Loan
You can pay off your unsecured debts by borrowing against your house. This option also entitles you to tax breaks. However, take note that if you do not make good on your payments, you may also lose your house and amplifying your financial woes.