Sunday, May 11, 2014

Bring all Debts Together

Putting your debts in one place is understandable and the phrase debt consolidation is well known. You may have even carried out a debt consolidation before.

If you want to simplify your life by putting all your debts together in one monthly payment, you may consider a debt-consolidation loan. These loans generally let you manage your debt at a lower interest rate over a set period.

Usually debt consolidation is not a viable option for most people. However, that doesn't mean you can't make one monthly payment to one organization to deal with your debts. Plus, with some debt solutions you are able to freeze your interest and charges meaning you can affordably repay your debt.

Putting all your debts together and having only one monthly bill each month is an effective way to better manage your finances. The disadvantage of dealing with more than one creditor and account is the risk of forgetting or overlooking a due date, and then having a late payment or late fee on your record. Through consolidation, you can decrease your monthly bills and combine your debts.

If you’re in debt, it’s important to consider all your options from debt consolidation to bankruptcy and make a choice that works best for your situation.

In today’s economy, the inability to pay your bills on time is often more the rule than the exception.

For some it feels like a never-ending cycle where you can’t afford necessities on your income, let alone pay for extras like vacations. Many resort to the use of credit cards or take out loans to pay for everything from groceries to cars.

In these kinds of situations it’s easy to fall behind on credit card and loan payments and either take out another loan to pay off the first set of debts or play musical chairs with your credit cards.

It’s common for people who are in debt to transfer balances owed to other cards until the last card standing is maxed out. When you get trapped in this cycle, what are your options to break free?

Generally, you will have only one loan payment that represents the debts being consolidated.

As with most loans, you will pay interest on the new loan, but if you have been making only minimum payments on your credit cards, chances are that the interest on those cards will be substantially higher than the interest you will pay on the consolidation loan.

A consolidation loan may be much less stressful too.

Having one monthly payment to focus on accumulating the money to pay for, makes it easier for you to control your finances and focus on making payments on other important assets not included in the consolidation loan such as your home, or on everyday life necessities.

Debt consolidation is akin to putting all your fruits into one basket.

You can consolidate your debt with a personal loan, but those can be difficult to qualify for if you're already struggling, and you run the risk of gaing more debt. Try paying off your debts one at a time.

To decrease the number of debts quickly, pay them off from smallest to largest. Pay the minimum on all but the smallest debt every month, and pay any extra you can spare on the smallest. When you get it paid off, move on to the next smallest. OR

To lose less money in interest, pay off the loan that's charging you the most interest. To find which is charging you the most interest, calculate it yourself by dividing the apr by 12 and multiplying this by the account balance, or just look on your statements. They will show "interest charged" or "new interest charges." The dollar amount next to it is the interest charges.

Pay down the account that's charging the most in interest by applying as much as you can after paying the minimum payment on the rest of your accounts. Review your bills every few months and switch if you realize another account has higher interest charges. Both of these methods work for paying down debts. Pick one and stick with it until your debts are gone, or at least down to comfortable levels.

You Have Options

One option is taking out a secured loan to pay off your unsecured debt, such as taking out a second mortgage or refinancing your home. But this carries risks. If you are already having trouble paying your bills, failing to pay a second or refinanced mortgage payment may put your home in jeopardy. You need to speak with a professional in order to accurately understand your options.

You may also consider borrowing against a 401k or other retirement plan to pay off your debt but you are essentially borrowing money from yourself to pay off money you have already “borrowed” so this option fundamentally doesn’t stop the cycle of debt. Depending on factors such as your age and when the loan is paid back, you may be subject to other negative consequences such as tax liability.

Any decision about borrowing money should be carefully considered. You’re safest bet is to speak with an attorney that specializes in bankruptcy and offers differing non-bankruptcy options.

While debt consolidation is only one possible solution to overwhelming debt, it should definitely be considered as an option by weighing the pros and cons and comparing them to other solutions. Making the right decision can affect your current financial situation and the future well-being of yourself and your family.

No comments:

Post a Comment