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Debt Consolidation Loan Advice

Debt Consolidation
Debt consolidation involves lowering your payments to a more manageable level by replacing consumer and credit card debt with a debt consolidation loan. Debt consolidation typically lowers your monthly payments in two ways:

• Lowering the interest rate you pay. Because consumer debt is usually unsecured (riskier to the lender), you pay higher rates. Debt consolidation loans are secured by property, so the rates charged are lower.
• Lengthening the time to pay off the debt. Loans secured by your home can have repayment periods of 10 years or longer. While stretching out the repayment of debt can result in paying more interest over the life of the loan, having a manageable payment can ultimately lower your overall expenses. First, by improving your credit scores, you'll eventually be able to secure cheaper financing than before. Second, eliminating credit card debt means eliminating the extra fees, increasing rates, and other charges that come with credit cards, especially for those with bad credit.

Debt Consolidation Done Right
Here's an example of how debt consolidation can make finances more comfortable:

• Current situation (monthly expenses exceed monthly income):
• Monthly Pay: $3500 ($2600 after taxes)
• Car Payment: $200 ($8,000 balance)
• Credit Cards $1200 ($20,000 balance)
• Amount left: $1200 a month for rent and everything else

With a $28,000 home equity loan at 11%: $318 (from debt consolidation calculator) Amount left: $2,282

Consolidating debt without planning or exercising discipline in your spending habits can only get you further into trouble, increasing your debt to even higher levels. Smart debt consolidation, as part of a complete plan, can get you some breathing room and allow new and better financial habits to take hold.

Debt Consolidation Loan Articles

  

  

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