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If you’re one of the millions of Americans struggling with overwhelming debt with little prospect of a raise to help offset rising costs, you may be wondering if it’s possible to lower your debt. Many people have successfully navigated their way to a healthy financial position by consolidating their debt. The steps you’ll need to take will depend on your specific financial situation. There are three things you can do that may lower your overall debt, make the payment more manageable and/or cut the amount of interest you’ll pay over the course of repayment – a home equity loan, a debt consolidation loan or a balance transfer.
Home Equity Loan/Mortgage Refinancing
Homeowners have a distinct advantage over those who don’t own a home. With a minimum of 20% in equity and good credit, you may qualify for refinancing of your mortgage or for a home equity loan. Your home will be collateral used to back the money you borrow. Refinancing your current mortgage at a lower interest rate will not only lower your payment but may even shorten how long it will take to pay it off. If you’re approved for a home equity loan, you can consolidate your debt and pay it all off at once, leaving one, and manageable monthly payment.
Personal or Debt Consolidation Loans
People who don’t own a home can apply for a personal or debt consolidation loan. Banks and credit unions offer unsecured personal loans with interest rates lower than most credit cards, which can be used to pay off high-interest debt. Depending on your credit history and level of debt, the loan may require collateral, like your car. Although it will carry a higher interest rate than a home equity loan, it sure beats the cost of paying for a high APR credit card. To ensure faster payoff if your financial situation improves, be sure the loan does not charge a prepayment penalty.
Balance Transfer Loan
For anyone who has multiple unsecured accounts, transferring those outstanding balances to one, low-interest account may be the solution to getting debt under control. Under the right circumstances, a balance transfer offer can save you a lot of money. For example, suppose you have a balance of $10,000 on your credit card with an APR of 15%. If you transfer it to a card with a 0% interest rate for 12 months, you’ll save more than$1,300 in interest. Keep in mind that there is a one-time balance transfer fee of between 3-5% which should be considered when calculating repayment.
No matter whether you choose a home equity loan, a debt consolidation loan or a balance transfer, each option has its advantages that will help you pay down your debt. A debt consolidation company will work with you to solve your financial hardship by negotiating settlements with your creditors on your behalf. But perhaps the most important point in all of this is the impact that the financial restructuring will have in making it easier to down your debt.
Five Simple Steps to Consolidate Debt
Have you fallen behind in your financial obligations? Do you wonder how you will ever be able to get your money situation under control? Millions of Americans fall behind on paying their bills every day, with may resorting to the drastic measure of bankruptcy when a consolidation loan could have put them on the path to financial solvency. Having your debt rolled into one, manageable account may open up the opportunity to start afresh, while you pay down your debt. Debt consolidation companies follow the same basic process to determine which program is best for each person’s specific situation. To take advantage of a consolidation loan, follow these five simple steps:
1. The first obvious step is to thoroughly and honestly look at your financial situation with the help of a debt counselor. You will provide all the details of your bills, loans and income to determine just how much you can afford to pay each month. The counselor will then discuss your options and help you choose the right program.
2. The second step is handled by the consolidation company. They will negotiate on your behalf with your creditors and collection agencies, if applicable. Their efforts may result in waived or reduced late fees and fines. All of your active credit accounts will be closed. At this time, you will no longer be able to add to your credit card debt.
3. The third step, preparing a budget, is vitally important not only for those who are struggling financially but for every consumer. The bill consolidation company will assist you in preparing one based on your current financial situation. Unless you learn better money management skills, you are destined to repeat your debt troubles. A detailed budget will put in place the ideals of setting priorities and living within your means.
4. The fourth step is agreeing to a repayment plan. The consolidation company will negotiate and prepare an agreement that is acceptable to you and all of your creditors.
5. The final step is the commitment you make to honor the repayment plan. Monthly payments will be made to the consolidation company who distributes those funds to your creditors.
Debt consolidation should never be taken lightly. Ask questions of your counselor. Be sure you understand all the details of your repayment plan. With a sincere resolve to get out of debt and a deep commitment on your part to stick with the plan, your future will soon be debt free.
Noreen Ruth is a popular writer for financial blog’s and various other websites. Hoping to educate consumers, she uses government and other reputable sources to provide up-to-date, relevant news on credit, debt, debt consolidation services and other finance related topics. She stays current on the latest legislative actions that may affect a consumer’s ability understand credit card applications, apply for credit, utilize money management services, etc.