Another area of interest for many people experiencing financial troubles is debt consolidation. It’s an attractive prospect and one that should be considered fully when a family’s money troubles only seem to be increasing.
Debt consolidation advertising seems to be everywhere – newspapers, bus stops, laundromats and all over the internet. It seems like everywhere you go you can see ads for bad credit debt consolidation loans, unsecured debt consolidation loans, auto debt consolidation loans and every conceivable word combination. But what is seriously lacking is good debt consolidation information. That’s what we hope to give you here.
What is Debt Consolidation?
Like credit repair, the concept of debt consolidation is simple and attractive: by combining multiple outstanding debts into a single debt the average person can lower their interest rate, their monthly payment, and maybe even lower the principal at the same time. However, like most things, many of the promises and hype don’t live up to the reality.
Another often touted benefit of this financial arrangement is ease: one monthly payment instead of juggling many as well as only paying interest to one location so more of your money goes to the principal and not eaten up in interest fees are the two main points. These are valid points, but they need to be taken in context and shouldn’t override the financial issues.
Secured vs. Unsecured Debt Consolidation Loans
Here’s a simple fact: you can’t get something for nothing when dealing in the financial world. Debt consolidation is the same. Secured debt consolidation can be a very risky and unwise decision. The security required is often something that is necessary to your way of life or livelihood; typically your car or your house. Miss the payments and they take away what you used to secure the loan with. Now you’ve just lost your house because you racked up too much credit card debt. You’ve taken a bad situation and made it far far worse. Of course, that is a worst case scenario, but it needs to be laid out and considered.
Unsecured debt consolidation loans will generally come with higher interest rates. Why? See the simple fact mentioned in the previous paragraph. If you don’t have something to secure the loan you’ll simply have to pay more for it. This can help you from needing to give up your house, your car or whatever they wanted as security for the loan, but the other problem of unsecured loans comes into play as well – longer repayment terms. Extending your unsecured debt consolidation loan repayment term out to 10, 15, 20 or more years saddles you with debt for so, so long it’s crazy.
What Is A Family To Do?
The first thing is to make a commitment to get out of debt and live a debt free life. It’s a big step and probably the most important one. It will take time to achieve, often year or even an entire decade. But it will make the remaining years of your life much freer than the ones up until now.
After that decision is made, gather up all your bills and write down three things in a list:
- Amount of the Debt
- Interest Rate
- Payment Date
- Average Monthly Payment
- How Long Until The Debt Is Paid Off In Full.
- Are You Current With Payments? If Not, How Bad Is It?
Include everything in these calculations – home loans, car loans, boat loans, jewelry payment plans, credit card debt (all of them, even the secret ones), dentist bills, old student loans; absolutely everything.
This will give you a clear idea of what you’re facing. If you take a look at this and then take a good hard look at your family budget (you have one, right? If not, stop everything and make one) and see if you can keep on how things are now. If you’re reading this article, the answer is probably no.
The next step is more of a process. Start collecting all the debt consolidation information you can. Read up on it, learn about it and then start going to local banks and seeing what they can do. Because here’s the nice thing about debt consolidation – often the creditors will accept less than the full amount owed them just to get the debt off their books. Work with someone who you feel you can trust and who can get you the best deal. Don’t be pulled in by fancy talk and big promises. Always keep an eye on the final costs of the financial arrangement they are offering you and weigh it against the debt consolidation information that you’ve already gathered.
Finally, don’t be afraid to walk away from a deal that doesn’t seem or feel right. Doesn’t matter how long the person has spent working with you trying to get you to sign their deal. If what they are pushing doesn’t match with the debt consolidation information you know to be true, keep looking.
Good Luck.
