What Are the Best Ways to Consolidate Debt
It is hard to estimate an ‘average’ debt for each individual as, depending on the methods used for working out the figures, the results can read very differently. However, it is estimated according to one set of figures that very many US citizens have a debt of around $15,000 and obviously, for some, this is much more. The minefield of information concerning the best ways to consolidate debt can often put people off even attempting to begin.
Consolidating means taking all the money you owe in various places and putting it all together to make just one debt payable to just one lender or company.
Simplifying the debt consolidation process allows those individuals struggling to find a starting point, a ray of hope. Debt can weigh so heavily that it can affect an individual’s relationships, marriage, work and health.
There are 3 main ways to consolidate debt. There are several more but in an effort to simplify the process as mentioned before we will just look at those 3.
Before you start it it can be helpful to have an idea of what is an achievable amount to repay every month for your own personal circumstances. Ask yourself in how many years would you like to be debt free. The general advice from financial experts is to opt for plans that allow you to be fully paid up in a maximum of five years.
Credit Card Debt Consolidation
This method is used by many people as there is such a variety of options for interest rates, credit cards with additional benefits, credit cards that are best for some-one with a bad credit history and so on. There is huge competition between the credit card companies for your business and this will often mean that good deals are to be found by shopping around.
One of the biggest bonuses of choosing this method is that no collateral is required.
Another bonus is that you can switch from credit card to credit card as better deals arise. However, be aware that by applying for too many credit cards your credit rating may be negatively affected.
Personal Loans
These fall into 2 categories – secured and unsecured loans.
Secured loans – the ‘secure’ part of this title is looking at it from the lender’s point of view. Their lending is more ‘secure’ as you will be expected to put up some surety or collateral of sufficient value, normally your house or a car. If you default on payments you run the risk of losing your collateral, that is your house or car.
As secured loans are lower risk to the lending company you can normally get better interest rates.
Unsecured loans – no collateral is required for this type of loan and as it is higher risk to the lender may be harder to obtain or have much higher interest rates.
Home Equity Loan
This type of loan uses the money that is yours that is tied up in your house. That is, the amount your house is worth minus any outstanding mortgage on the property.
These type of loans are normally obtained through your existing mortgage lender in a variety of forms with both fixed and variable interest rates and different lengths of terms.
As with secured loans your risk is that, should you fall behind with payments, you may lose your house in a worse case scenario.
Personal debt and its best solutions can vary greatly depending on the individual’s personal circumstances and their general credit history.
Many of the offers tie you in for a fixed period and should you wish to switch lender before the contract is up have sometimes severe financial penalties. It is worth checking this small print before committing. Again, there is no right or wrong, rather it is dependent on what would work best for you and what you feel comfortable with.
The worst thing you can do when faced with spiraling debt problems is to pretend it isn’t happening and ignore it. It won’t go away. Most companies react positively if you contact them as soon as a problem occurs. If you can show clearly that $1 is all you can manage for the foreseeable future many companies take your contact as a positive sign of commitment to your debt and won’t take further action. If you just keep ignoring their demands they will take action against you.
The Internet is a wonderful resource for the confused debtor looking for the best ways to consolidate debt. Websites such as MoneySupermarket.com and moneysavingexpert.com (for UK information) and bestmoneysavingsites.com (for US information) are particularly helpful. They take all the leg work out of the process for you by comparing all the best current deals from various lenders on credit cards and loans. They have various tools for you to use to calculate your debt and also offer ‘best of’ offers depending on whether you have good, medium or bad credit history. They are packed full of tips and advice for your benefit. There are many more websites offering advice on the best ways to consolidate your debt.
If you are particularly confused a good starting point is to approach your bank or building society to ask them to explain in a little more detail the various terms and options. Being face to face also allows you to ask questions to clarify points you are not clear on. However you choose to start, do it now. The longer you leave it, the worse the problem will become.
Article by Outofstress.com expert author ‘Deneice Arthurton’. © 2010 Outofstress.com.