Valuable Tips on Consolidating your Debt
Debt consolidation is the process of getting a loan that will ultimately be used by the consumer to combine their loans and liabilities into one loan. This allows debtors to pay one bill instead of several separate bills each month. The bank, credit union or other financial institution loan is meant to decrease the amount paid, versus the total of all the separate debt payments.
This payment is smaller because the debt can be paid over a longer period of time, and/or the interest is lower. Another advantage is to get a fixed rate loan if some of your debts have fluctuating rates.
Tip Number 1 – It Starts With Your Credit Report
Pull your credit report and verify that all your personal information, account information, balances and payment history is correct. If there are mistakes, get them fixed and cleared off. This process can take a good 30-45 days, so make sure this is where you start.
There are several places that offer free credit reports, some offer free FICA scores, but be careful. Sometimes these services are free for a short, limited number of days before they start charging you for some type of service or monthly fee. One of the websites that provides a free report and the ability to clear some of the problems online is www.annualcreditreport.com.
After you’ve taken care of your credit report, then start looking at options.
Tip Number 2 – Know What The Numbers Are
You need all the facts and figures and information. www.moneycentral.msn.com has two calculators that are your best tool during this time. The Consolidate Your Debt Payment calculator allows you to change the payment amounts and see how that affects your debt, The Consolidate Your Debt Time Frame Calculator allows you to enter different terms and see how that affects your results.
To use these calculators, you’ll need to know what your total debt is and what your details are. Make a list that includes the balance owed on each loan or credit card, the monthly payment and the interest you are paying on each account. Include how many payments are left for each bill. Know that you have an idea of what your total debt is, you can play with the terms and rates and see what you need to get from a lender in order save you money.
Tip Number 3 – Your Best Options
Your best options for debt consolidation start with your house. If you have equity in your home and can qualify, the interest rates will be the lowest on either a home equity loan or a cash-out refinance.
- Home Equity Loan: The advantages are a fairly low interest rate and the interest is tax-deductible. Make sure you get a fixed-rate loan. The term might vary, but most are 15-year. Check the origination fee, the cost of appraisal and if you need title insurance, what it would cost.
- Cash-out Refinancing: The advantages are very low rates and tax-deductible interest. Again, check fees, appraisal costs and closing costs. The downside could be stretching payments out for 15 to 30 years. Figure the interest on the amount and make an informed decision.
- Refinancing your car: The advantages could be a fairly low rate and this might be a good option depending on how much money you need and what the car is worth. The downside to this is if you need a new car in a few years and owe more on the car than it is worth.
- Personal Loan: This unsecured option might have an 11% or higher interest rate, but if you are paying 20% and more to credit card companies, this could still be a great option. These loans can be harder to get and your credit report score will feature prominently. Check with your credit union.
There you go, tips to get you started if you are considering a debt consolidation loan.
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