How to consolidate debts - 5 easy steps
0 Comments Published by bill hilton on Monday, August 07, 2006 at 1:52 PM.
Because consumer debt is rising so fast, consolidation companies are slashing their interest rates to attract new business. You could say there's never been a better time to be in debt, because it the past you would never had the chance to choose from so many great deals to consolidate debts.
Consolidation is a simple process, but it's not the end of your debt problem: it will simply move all your debts 'under one roof'. The interest rate you pay will probably be lower than the average rate you were paying when you had your debts distributed among several lenders - however, if you have a poor credit history or no home against which to secure your consolidation loan the rate may still be high.
OK: here we go with the five easy steps to debt consolidation:
1. Hunt around for the best possible consolidation deal. As we've seen, the market is intensely competitive. If much of your debt is on credit cards (average APR 14-17%) then you should be able to cut the interest rate by at least a fourth, and maybe as much as a half or more, depending on your personal circumstances. It really pays to shop around. It may not seem worth checking out loads of different debt consolidation companies simply to shave an extra half a percent of your interest rate, but it is - an extra half percent reduction on a debt of $50,000 represents a saving of more than $700 over five years.
2. Commit to as tight a time frame as you can. Paying off your $50,000 over five years rather than ten years will save a lot of money in interest payments.
3. Don't "cash out" the consolidation loan, adding a couple of thousand dollars to it as it starts just to give yourself some spending money - it's still not your cash, and it still needs paying back!
4. Commit to a repayment schedule you can afford, but don't be too laid back: it's in the interest of the debt consolidator to get you to commit to as long as period as possible. Balance this against your ability to pay.
5. Once a debt consolidation deal is fixed up you'll have a big load off your mind - the amount of creditors on your back will have reduced to one, and you may have saved your credit rating. Don't celebrate by getting into more debt!
Consolidation is a simple process, but it's not the end of your debt problem: it will simply move all your debts 'under one roof'. The interest rate you pay will probably be lower than the average rate you were paying when you had your debts distributed among several lenders - however, if you have a poor credit history or no home against which to secure your consolidation loan the rate may still be high.
OK: here we go with the five easy steps to debt consolidation:
1. Hunt around for the best possible consolidation deal. As we've seen, the market is intensely competitive. If much of your debt is on credit cards (average APR 14-17%) then you should be able to cut the interest rate by at least a fourth, and maybe as much as a half or more, depending on your personal circumstances. It really pays to shop around. It may not seem worth checking out loads of different debt consolidation companies simply to shave an extra half a percent of your interest rate, but it is - an extra half percent reduction on a debt of $50,000 represents a saving of more than $700 over five years.
2. Commit to as tight a time frame as you can. Paying off your $50,000 over five years rather than ten years will save a lot of money in interest payments.
3. Don't "cash out" the consolidation loan, adding a couple of thousand dollars to it as it starts just to give yourself some spending money - it's still not your cash, and it still needs paying back!
4. Commit to a repayment schedule you can afford, but don't be too laid back: it's in the interest of the debt consolidator to get you to commit to as long as period as possible. Balance this against your ability to pay.
5. Once a debt consolidation deal is fixed up you'll have a big load off your mind - the amount of creditors on your back will have reduced to one, and you may have saved your credit rating. Don't celebrate by getting into more debt!
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