Bad and Good Debt Consolidation Moves
Some of us wish that there was a way to somehow squash all of our debt into one tiny package making our debt go away or making it so we only owed a small amount. Many of us have this dream. And there are so many Debt Consolidation programs out there. Many of us get mails or emails every week offering deals to transfer your balance for lower cost, cut your minimum payments in half, one click to eliminate your debt or zero interest rates. However, before you jump into any of these great sounding deals, you should always look at fine print. Here are three moves that should be avoided.
1. “Promises to Handle it All” Debt Consolidators
This is what we all wish would happen. A debt consolidator who can eliminate all of your debt. They promise to make things better and all that is needed is one payment. As a matter of fact, there are many fees that get incorporated into your monthly payment. This fee is usually around 10%. Your payment is passed along to the creditors. Some are now even taking your payments directly from your checking account. The creditor takes their half and gives the rest back to the consolidator. This may seem like a great deal but this is also something that you can do on your own. It is easy to stretch out payments as well as getting a lower interest rate.
2. Hard Money Loan
Getting a loan for debt consolidation is one of the hardest ones to get making this another thing to watch out for. If you are considered a credit risk, some creditors will try to take advantage of you and may try to steer you towards easy-do-it types of loans. Interest rates are usually higher as well.
3. Transfer Balance Trick
Nowadays there are tons of cards that offer low-interest for balance transfers. You should remember though that those rates are low for now and after a few months they increase again. The downfall is that all of this ends up on your credit report leading you to be a high risk. If you can manage that, you will have to close everything on your own. Make sure you tell your credit card company so they can make note of that on your report stating closed at your request, rather than it looks like they closed your account.
Of course, there are indeed several effective options you can choose from in order to better manage your debt, especially if you have a home that has equity. Here’s a list of good moves you can try.
1. Home Equity Loan
Taking out a home equity loan is a great option. The interest rate is fairly low and any interest you end up paying can be claimed on taxes making it tax-deductible. Most of these loans will require you to pay a fee of anywhere from $75 to a few hundred. “Cash Out” Refinancing is another great option for those who have equity on their property. You have the ability to get lower interest rates and spread payments over a length of time.
2. Obtain Personal Loans
For those whose credit is not bad, there are unsecured loans they may qualify for. Credit unions usually have lower rates as opposed to banks.
3. Refinancing a Car
You can consider refinancing your car. However, it will get tougher for you to get another car when you owe more than it is originally worth. And you may end up running out of a car before your debt is gone.
4. Other Alternatives
You can call the companies and ask them to negotiate better terms with you. Most representatives can do this for you. Another option you can try is to get help from a good debt consolidation company. There are many available that are aimed to help those in debt. Many are non-profit and they give free advice to those who can benefit from it. Some can even be done over telephone. Some debt consolidators especially those non-profit debt consolidation companies get paid by creditors. Most of them try to work out payment plans as they don’t want you declaring bankruptcy since it goes on your credit and has a negative effect.
To sum up, there are plenty of choices available when it comes to debt consolidation. The best thing to do is to research each one and decide what one best matches your situation.
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