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Look In To | Debt Consolidation
What is Debt Consolidation?
Debt Consolidation is often a sensible decision to reduce financial pressures. People opt for Debt Consolidation when they feel that their finances need to be controlled in a more organized way, but certain factors are kept in mind before signing up a debt consolidation.
10 Debt Consolidation
1. Why do want to consolidate debt?
The idea behind debt consolidation is to take out a single loan and use it to repay all existing credit card debts, loans and overdrafts. This act normally results in lower payments which are spread over longer term but before you process with debt consolidation, its better to consider another alternative.
2. Sell assets to clear your debt
Before rescheduling debts, do check out if there is any other way you can repay some or all of your debts. For example, sell unwanted valuables and other items.
Depending on the item you intend to sell, advertise in local classified advertisements or through websites. You can sell books through Amazon. If you own your own home, then you can even consider downsizing it to release equity, if your debts are very high.
3. Pay more than the minimum off your credit cards.
If you are able to pay more than the minimum monthly payments, you should give priority to continue with your existing credit cards and clear the debts over the next 12-18 months.
This will restrict your spending in other areas but it is the cheapest option in long term basis. You may still go for debt consolidation to manage your debts easily.
4. If currently you are managing to pay minimum monthly payments only through credit cards, or your total credit card debt is increasing each month, then debt consolidation would be the better choice. There are a number of options when considering debt consolidation.
5. A mortgage or re mortgage
If you are the owner of your own home, then it’s possible to obtain some lowest interest rates by taking out new mortgages to pay off your existing mortgage (if any) or other debts.
If repaying existing mortgage results in penalty charges, consider a second mortgage with your existing lender. There is a possibility that the interest charged won’t be that high.
6. Take out a secured loan with another lender
If payments have been missed or delayed and your credit score is too low for your mortgager, then find another lender who can give you a secured loan.
In such situations, secured loans are costly and the lenders are also quick to repossess your home if payments are missed. Only opt for this method when you are sure that you can make the repayments.
7. Loan secured on assets
If you possess an expensive car, boat or plane then there is a probability that you can get finance using these assets as security. Interest rate would be high in comparison to a loan secure on property. If you don’t own a property, or if it’s fully mortgaged, then securing a loan on other assets could be a choice.
8. An unsecured loan
If you don’t possess any sort of property or assets then unsecured loan could be the choice. It’s usually over a shorter term, a maximum of seven years but occasionally longer. As a result the monthly payments will be higher but the debt will reduce quickly.
9. Credit card option
If your debts are low and your credit history is also reasonable, then think about applying for another card with a 0% or low interest balance as an alternative to a debt consolidation loan.
There is always a 2-3% charge on the balance transfer, so be aware and cut up all your credit cards and close paid off accounts so that you don’t slip back into debut.
10. Check all the options before making a decision.
As one researches all available options for debt consolidation, the most suitable becomes obvious soon. For some, more than one option could be taken up, so it it’s essential to check them all. For many individuals debt consolidation is an ideal solution to help reduce excessive credit card debt. Once all debt problems are solved, one can have an enjoyable and a more relaxed life.
That was all about debt consolidation.
How to Pay Back a Debt
Paying back a debt may not be as easy as acquiring it and this is why many people avoid getting themselves into debts such as loans or mortgages. However, once the borrower finds ways on how to pay back a debt, one day at a time, it becomes much easier to settle the debt. Debt repayment requires a lot of budgeting and a person who is smart enough to prioritize the things he requires will have an easy time getting out of a debt however big it may be. Below are some tips that are important for a borrower to consider when planning paying back his or her debt.
1. Understanding the debt owed
* Avoiding the debt or pretending there is no debt does not help the situation since the debt will remain there and most probably increase.
* The person should get to know the entire amount he or she earns and how much the credit card has listing every debt for each card or loan.
* Once the figures have been added up and the borrower knows how much he has to pay back, he can now find ways of paying back the debt one day at a time.
2. Classifying debts according to priorities
* Once all debts are known and the amount of money they cost each, they should be prioritized depending on various factors.
* The high interest debts should ideally be the first to be paid back while those that affect the individual’s tax return should be paid the last.
3. Earning more to repay the debt
* Once the prioritization has been done and a clear guideline is designed on how to repay the debts, the person can look for sources in his budget that can pay back the debts.
* More money can be found by reducing unnecessary expenditure such as partying costs and dinner dates among others.
* One can also get extra money to repay his debt by finding a job that pays better, getting a second job or starting a business that will bring in more money.
* A home equity loan can also be acquired and be used for paying back the debts.
4. Debt renegotiation
* Renegotiating the debt repayment terms is also another wise way of faster debt repayment.
* A huge amount of money can be saved if paying back the debt in pump sum saves on the interest that would have been charged if the debt was to be paid back on monthly basis.
Paying back a debt is not a hard thing to do if the tips above are followed to the latter. The most important thing that should be considered when planning to easily repay a debt is the needs and the wants in life. Categorizing activities into the wants and needs groups will enable one to define what things are more important in his or her life and which ones can be shelved for some time until the debt is fully settled. People should therefore not avoid taking loans or mortgages since they are designed to help people out. The only lacking ingredient to a stress-free life is a smart way of paying back the debts acquired.
