You dread paying your monthly bills; the balances aren’t decreasng, the due dates change, and extra fees keep adding up. What can you do? Getting a debt consolidation loan can help stabilize your finances and reduce bill paying chores. Here are some options, along with pros and cons for each.
Secured Debt Consolidation Loans
Home refinance or home equity loans: If you own your home, and have enough equity, you may qualify for a mortgage refinance or home equity loan. These loans provide cash to pay off bills, typically at much lower rates than credit card companies charge. The bad news is that adding to your mortgage amount can potentially increase your risk of losing your home to foreclosure. You also have to pay lender fees and other costs to refinance your mortgage or take out a home equity loan. These costs may negate potential savings unless you’re carrying a significant amount of consumer debt.
Auto title loans: If you cannot qualify for an unsecured personal loan (and those with high levels of debt may have difficulty getting approved), you may be offered a “secured” loan, or vehicle title loan. Typically, you sign the title to your car over to your lender until you’ve repaid the loan. You keep your car, but this can be risky; if you fail to make payments, you could lose your car. Carefully weigh the benefits of consolidating debt with a secured loan; it may be worthwhile if you’re certain of your ability to pay off the loan quickly.
Pawnshop loans: These are lenders of last resort; they charge exorbitant rates and many borrowers end up losing the goods they put up as collateral. Before going to a pawnshop for money, check into non-profit credit counseling. These agencies can help you reduce the cost of debt and work with your creditors to provide debt relief.
Unsecured Debt Consolidation Loans
An unsecured debt consolidation loan may be worthwhile, but only if you can pay off all of your bills with the loan. Unsecured loans involve greater risk, so lenders charge higher rates. Compare the APRs of your debts with APRs quoted for debt consolidation loans. The major risk with debt consolidation is that you incur future debts. If you doubt your ability to control spending and live on a cash based budget, a debt consolidation loan may lead to more debt. Consult a credit counseling service to learn more about debt consolidation and debt management assistance that can help you get and stay out of debt.
Filing for bankruptcy should only be used as a last resort if you can’t dig your way out of debt. Don’t be fooled into thinking that a bankruptcy filing has little impact on your financial situation. Going this route is certain to affect your entire life for years to come.
Pushed into Bankruptcy
There are many reasons people resort to bankruptcy. Too much credit card debt, a job loss, divorce, or illness can push anyone into financial ruin. For example, a recent Families USA report said nearly two-thirds of bankruptcy filings are related to medical issues. Read the rest of this entry »
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This blog covers a wide variety of debt consolidation and loan topics.
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Chris Rocks is the Regional Director of the National Credit Federation (NCF). NCF is a nationwide membership-based organization that assists consumers recovering from a financial difficulty and those who need a significant increase in their credit score.
Chris began his financial services career as a Financial Advisor helping young families with risk management and asset accumulation strategies. It was during that time that Chris realized that many of these young families also needed someone to guide their choices with regards to debt management.
He made the transition into the mortgage industry where he first worked as a loan originator and later the Vice President of a small mortgage company. As Chris came across clients who had suffered through financial challenges and saw the difficulty they had in re-entering our credit driven economy, he discovered there was a real opportunity to leverage his unique background and help others.
He can be contacted by visiting his personal site, GoodCreditLiving.com.
Francine L. Huff is the Publisher and Editorial Director of Super Savvy Publishing, LLC, which provides editorial and publishing services. She is a gifted author, freelance journalist, and motivational speaker who has entertained and motivated a variety of audiences through workshops, panels and keynote addresses. Francine is the author of The 25-Day Money Makeover for Women, which has inspired and motivated many readers to rein in poor financial habits, become good stewards over their money and work toward a debt-free life. She has appeared on a variety of TV and radio shows. Francine previously worked for the Wall Street Journal, where she was the spot news bureau chief, a news editor and a copy editor. She has interviewed a variety of financial professionals about financial issues and strives to present information about managing money in an easy-to-understand format that is accessible to people of all backgrounds and income levels.
Karen Lawson is a freelance writer with more than 15 years of experience working in mortgage banking and loan servicing. She holds BA and MA degrees in English from the University of Nevada, Reno. She enjoys writing informative articles about debt management and personal finance.