Debt is a lesson that we all must learn one way or another. Some of us learn it sooner than others just of us learn it much much better than others. The problem seems to start when we are young, about college age, and eligible for several credit cards. This is potentially the start down a dark road, a fact that credit card companies know and one that some of us will either learn the hard way or have already seen through friends and family members that are in debt.
Even if we know the dangers and see the potholes life still has a way of pushing us into unavoidable circumstances. It doesn’t matter how we ended up with mountains of debt, all that matters is scaling them and standing triumphant on top of them rather than straining our necks looking up at them. One excellent tool to use to scale the mountain is debt consolidation.
What Is Debt Consolidation?
Debt consolidation is the act of lumping all of your debt into a single location in order that you can lower both the amount of your interest rate and your monthly payment. Doing this also gives you the added benefit of lowering your chances of forgetting to pay one of your bills.
Debt Consolidation Options
You have several options when it comes to debt consolidation, but it’s up to you to sit down and really analyze your current financial situation to decide which option is best for you. While some of the available options are wonderful and responsible, there are some that can seem just as appealing, but in reality can actually put you in a much worse position than you are already in.
A secured debt consolidation loan like a home equity loan is one of the more favorable options available. In most cases this kind of loan comes with an extremely low interest rate since you have to put up collateral, or one of your assets such as your car or home. While there is a chance that you could lose your asset in the event that you should fail to make a payment, you will be hard pressed to locate a better deal on a secured debt consolidation loan.
Choosing a consumer debt help group or company to assist you with your debt may seem like a good idea, but you’ll want to do your homework before you decide. There are some companies that only want to take advantage of your fear and lack of knowledge. They’ll give you a false sense of security and tell you that all of your problems will be gone in a matter of months while all the while they are charging you with hidden fees for their assistance. At times these fees can be up to 20% of your debt and these kinds of crooked companies might even be getting paid by debt collectors as well. Before signing or agreeing to anything take some time to look at the debt consolidation quote and read the fine print so that you know for a fact what you are getting into.
While filing for bankruptcy may seem like a good idea at first, this decision may come back to haunt you and prove to be a temporary fix to your problems. Once you are finally out of debt and try to purchase a house or take out a loan, it may prove to be extremely difficult once someone sees that you have filed for bankruptcy. Bankruptcy should only be a last option, especially when there are so many services and companies out there that are ready, willing, and able to help you safely get out of debt.
Moving all of your debt to a credit card is another option for you to choose from and could be one of the easiest if you can find a company that can offer you a low enough interest rate. The only problem with getting a credit card is being approved for one. You’ll not only need low interest rates, but a high limit as well so that you can cover all of your debt and there aren’t many people that qualify for something like this. If you can find a willing co-signer, then a bank or credit card company may approve you even though your financial situation is less than ideal.
Bad Debt Consolidation Options
A hard-money loan is not a very good option. The reason being because you are a credit risk. While you may be taken in by the consolidator’s promise of an easy loan, they might end up charging you with substantially higher interest rates than what you are paying now.
Another bad move is the low-interest balance-transfer card. Although they are a popular option you have to keep in mind that the rates do not last very long and you’ll wind up switching cards again. The danger here is that eventually this kind of activity is going to appear on your credit report when applying for a new card. If you do get turned down, then you’re left with the high-interest card.
